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					RAND CAPITAL
   CORPORATION




             2008 Annual Report
April 3, 2009




Dear Shareholders,

I am pleased to share the results of 2008 with you.

During the year:
     • We grew our Net Asset Value by 2% to $3.54 at year end.
     • We invested $1.0 million in three new companies and an additional
       $600,000 in three existing portfolio companies.
We now have investments in 19 companies representing $28.1 million in
investment value.
It has been an extremely difficult economic environment for Rand and its
portfolio companies. As we forecast our liquidity needs for operating
expenses and investment in new companies or current companies, there
may be some scenarios where we need additional capital. We have asked you
to approve a motion that will allow Rand to sell shares below our Net Asset
Value under certain circumstances. At this point, we do not have a firm plan
to sell shares and have not had any discussions with any prospective buyers.
However, we felt it was prudent to have the flexibility to sell these shares
under the appropriate circumstances.


Thank you for your continued support.

Sincerely,



Reginald B. Newman II                                       Allen F. Grum
Chairman                                                    President
Portfolio of Investments December 31, 2008
              Adampluseve, Inc. (dba Adam)
                New York, NY. Luxury sports wear designer for men and          GridApp Systems, Inc.
                women. www.shopadam.com                                          New York, NY. Provider of database automation software that
                                                                                 helps businesses gain control of their heterogeneous database
              Type of Investment
                                                                                 applications through a centralized software console.
                Warrants to purchase 1,715 Series A convertible preferred
                shares.                                                          www.gridapp.com
                                                                               Type of Investment
                    Year Acquired: . . .2006 Cost: . . . . . . .$68,000
                                                                                 $660,000 term note at 4% simple interest, 8% deferred interest
                    Percent Equity: . . . .2% Value . . . . . .$133,341
                                                                                 (PIK) due January 4, 2012. $6,667 convertible note at 4% due
                                                                                 November 28, 2018.
              APF Group, Inc. p                                                      Year Acquired: . . .2008 Cost: . . . . . .$666,667
                Yonkers, NY. Manufacturer of museum quality picture frames           Percent Equity: . . . .3% Value: . . . . . .$666,667
                and framed mirrors for museums, art galleries, retail frame
                shops, upscale designers and prominent collectors.             G-TEC Natural Gas Systems p
                www.apfgroup.com                                                 Buffalo, NY. Manufactures and distributes systems that allow
              Type of Investment                                                 natural gas to be used as an alternative fuel to gases.
                $587,786 consolidated senior subordinated note at 8% due         www.gas-tec.com
                June 30, 2011. $13,514 senior subordinated note at 14% due     Type of Investment
                June 30, 2011. Warrants to purchase 10.2941 shares of            28.925 Class A membership interest. 8% cumulative
                common stock.                                                    dividend.
                   Year Acquired: . . .2004 Cost: . . . . . .$607,335                Year Acquired: . . .1999 Cost: . . . . . .$400,000
                   Percent Equity: . . . .6% Value: . . . . . .$300,000              Percent Equity: . . .29% Value: . . . . . .$198,000
                                                                               Innov-X Systems, Inc. p
              Associates Interactive, LLC. p                                      Woburn, MA. Manufactures portable x-ray fluorescence
                Buffalo, NY. Provider of training content and certifications      (XRF) analyzers used in metals/alloy analysis.
                used to train retail sales associates.                            www.innovxsys.com
                www.associatesinteractive.com                                  Type of Investment
              Type of Investment                                               2,642 Series A convertible preferred stock. Warrants for 21,596
                $247,813 promissory note at 9% due December 19, 2012.          common shares. 8% cumulative dividend.
                Investor units totaling 21.88% of company.                     Interest receivable $162,411
                    Year Acquired: . . .2007 Cost: . . . . . .$250,000                Year Acquired: . . .2004 Cost: . . . . .$1,000,000
                    Percent Equity: . . .22% Value: . . . . . .$250,000               Percent Equity: . . . .9% Value: . . . . .$8,761,700

              Carolina Skiff LLC p                                             Kionix, Inc.
                Waycross, GA. Manufacturer of fresh water, ocean fishing and     Ithaca, NY. Develops innovative MEMS based inertial sensors
                pleasure boats. www.carolinaskiff.com                            used in consumer electronics, automation and healthcare
                                                                                 sectors. www.kionix.com
              Type of Investment
                $985,000 Class A preferred membership interest at 7.5%.        Type of Investment
                Redeemable January 31, 2010. 5% common membership                2,862,091 shares Series A preferred stock. 744,526 shares
                interest. Interest receivable $638,693                           Series B preferred stock. 696,296 shares Series C preferred
                                                                                 stock.
                    Year Acquired: . . .2004 Cost: . . . . .$1,000,000
                    Percent Equity: . . . .5% Value: . . . . .$1,000,000             Year Acquired: . . .2002 Cost: . . . . .$1,506,043
                                                                                     Percent Equity: . . . .2% Value: . . . . .$2,000,000

              EmergingMed.com, Inc.                                            Mezmeriz, Inc.
                New York, NY. Cancer clinical trial matching and referral        Ithaca, NY. Developer of micro mirror technology that
                service. www.emergingmed.com                                     replaces silicon with carbon fibers in microelectronic
              Type of Investment                                                 mechanical systems (MEMS), enabling efficient, wide-
                $500,000 senior subordinated note at 10% due December 19,        angle, Pico projectors to be embedded in mobile devices.
                2010. Warrants to purchase 5.5% of common stock.                 www.mezmeriz.com
                Interest receivable $151,667                                   Type of Investment
                    Year Acquired: . . .2005 Cost: . . . . . .$500,000           $100,000 convertible note at 9% percent due January 9, 2010.
                    Percent Equity: . . . .7% Value: . . . . . .$500,000             Year Acquired: . . .2008 Cost: . . . . . .$100,000
                                                                                     Percent Equity: . . . .0% Value: . . . . . .$100,000
              Gemcor II, LLC p
                West Seneca, NY. Designs and sells automatic riveting          Niagara Dispensing Technologies, Inc. p
                machines used in the assembly of aircraft components.            Amherst, NY. Beverage dispensing technology development
                www.gemcor.com                                                   and products manufacturer, specializing in rapid pour beer
              Type of Investment                                                 dispensing systems for high volume stadium and concession
              $250,000 subordinated note at 8% due June 28, 2010 with            operations. www.exactpour.com
              warrant to purchase 6.25 membership units. 25 membership         Type of Investment
              units.                                                             463,691 Series A preferred stock. 720,833 Series B preferred
                     Year Acquired: . . .2004 Cost: . . . . . .$603,200          stock.
                     Percent Equity: . . .31% Value: . . . . .$5,803,201             Year Acquired: . . .2006 Cost: . . . . .$1,281,783
                                                                                     Percent Equity: . . .14% Value: . . . . .$1,170,783
              Golden Goal LLC
                Fort Ann, NY. Youth soccer and lacrosse tournament park.       Photonic Products Group Inc. (OTC: PHPG.OB)
                www.goldengoalpark.com                                           Northvale, NJ. Develops and manufactures products for laser
                                                                                 photonics industry. www.inrad.com.
              Type of Investment                                               Type of Investment
                                                                                 66,000 shares common stock.
                191,811 Class C units at 4%.
                    Year Acquired: . . .2007 Cost: . . . . . .$637,414               Year Acquired: . . .2000 Cost: . . . . . .$165,000
                    Percent Equity: . . . .6% Value: . . . . . .$400,000             Percent Equity: . . . 1% Value: . . . . . .$112,000
                                                RAMSCO p
REXFORD ALBANY MUNICIPAL SUPPLY COMPANY, INC.     Albany, NY Distributor of water, sanitary, storm sewer and
                                                  specialty construction materials to the contractor, highway and
                                                  municipal construction markets. www.ramsco.com
                                                Type of Investment
                                                  $300,000 promissory notes at 9% due October 20, 2010.
                                                  Warrants for 5.99% of common stock.
                                                      Year Acquired: . . .2002 Cost: . . . . . .$300,000
                                                      Percent Equity: . . . .6% Value: . . . . . .$300,000



                                                Somerset Gas Transmission Company, LLC
                                                  Columbus, OH. Natural gas transportation company.
                                                  www.somersetgas.com
                                                Type of Investment
                                                  26.5337 units.
                                                  Year Acquired: . . . . . .2002      Cost: . . . . . .$719,097
                                                  Percent Equity: . . . . . . 2%      Value: . . . . . .$786,748




                                                SOMS Technologies, LLC p
                                                  Valhalla, NY. Produces and markets the microGreen Extended
                                                  Performance Oil Filter. www.microgreenfilter.com
                                                Type of Investment
                                                  $250,000 secured convertible note at 10% due December 2,
                                                  2010.
                                                      Year Acquired: . . .2008 Cost: . . . . . .$250,000
                                                      Percent Equity: . . . .0% Value: . . . . . .$250,000

                                                Synacor, Inc.
                                                  Buffalo, NY. Develops provisioning platforms for aggregation
                                                  and delivery of content and services across multiple digital
                                                  devices. www.synacor.com
                                                Type of Investment
                                                  234,558 Series A preferred shares. 600,000 Series B preferred
                                                  shares. 240,378 Series C preferred shares. 897,438 common
                                                  shares.
                                                      Year Acquired: . . .2002 Cost: . . . . .$1,349,479
                                                      Percent Equity: . . . .4% Value: . . . . .$4,168,001

                                                Ultra — Scan Corporation p
                                                  Amherst, NY. Biometrics application developer of ultrasonic
                                                  fingerprint technology. www.ultra-scan.com
                                                Type of Investment
                                                  536,596 common shares. 202,388 Series A-1 preferred shares.
                                                      Year Acquired: . . .1992 Cost: . . . . . .$938,164
                                                      Percent Equity: . . . .4% Value: . . . . .$1,203,000

                                                      Other Investments
                                                        (Cost and Value) . . . . $ 2,044,269        $     22,841
                                                      Total portfolio
                                                        investments
                                                        (Cost and Value) . . . . $14,386,451        $28,126,282

                                                  p Indicates those companies which Rand has a seat on the
                                                    Board of Directors
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                                              Washington, D.C. 20549

                                                                  FORM 10-K
¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
       For the fiscal year ended December 31, 2008
n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
       For the Transition Period from                                  to
                                                          Commission file number: 814-00235

                                      Rand Capital Corporation
                                                     (Exact Name of Registrant as specified in its Charter)

                                New York                                                                         16-0961359
                       (State or Other Jurisdiction of                                                  (IRS Employer Identification No.)
                       Incorporation or organization)

                 2200 Rand Building, Buffalo, NY                                                                    14203
                   (Address of Principal executive offices)                                                        (Zip Code)

                                                                       (716) 853-0802
                                                         (Registrant’s Telephone No. Including Area Code)

                                          Securities registered pursuant to Section 12(b) of the Act:
                                                                     None
                                          Securities registered pursuant to Section 12(g) of the Act:
                                                         Common Stock, $.10 par value
       Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities
Act.     Yes n     No ¥
       Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.     Yes n     No ¥
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ¥          No n
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¥
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer n                  Accelerated filer n                 Non-accelerated filer ¥           Smaller reporting company n
                                                                      (Do not check if a smaller reporting company)
       Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                         Yes n   No ¥
    The aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant as of June 30, 2008
was approximately $13,325,039 based upon the last sale price as quoted by NASDAQ Capital Market on such date.
       As of March 6, 2009 there were 5,718,934 shares of the registrant’s common stock outstanding.
                                             DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held on April 30, 2009 are
incorporated by reference into certain sections of Part III herein.
                                              RAND CAPITAL CORPORATION
                                           TABLE OF CONTENTS FOR FORM 10-K

                                                                    PART I
Item   1.         Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ....    1
Item   1B.        Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               ....    6
Item   1A.        Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     ....    4
Item   2.         Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ....    6
Item   3.         Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        ....    6
Item   4.         Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .                          ....    6

                                                          PART II
Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
            of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             7
Item 6.     Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                9
Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations . .                                                   11
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . .                                  25
Item 8.     Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             26
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . .                                                    47
Item 9A(T). Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 47
Item 9B.    Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             47

                                                             PART III
Item 10.          Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .                             . . . . 47
Item 11.          Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             . . . . 48
Item 12.          Security Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . 48
Item 13.          Certain Relationships and Related Transactions, and Director Independence . . . . . . . .                                      . . . . 48
Item 14.          Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   . . . . 48

                                                     PART IV
Item 15.          Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
                                                       PART I

Item 1.   Business
Corporation Formation
      Rand Capital Corporation (“Rand”) was incorporated under the laws of New York on February 24, 1969.
Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was
registered under Section 8 of the Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001,
Rand elected to be treated as a business development company (“BDC”) under the 1940 Act. In 2002, Rand formed
a wholly-owned subsidiary for the purpose of operating it as a small business investment company (“SBIC”)
licensed by the U.S. Small Business Investment Administration (“SBA”). The subsidiary received an SBA license to
operate as an SBIC in August 2002. The subsidiary, which had been organized as a Delaware limited partnership,
was converted into a New York corporation on December 31, 2008, at which time its operations as a licensed small
business investment company was continued by a newly formed corporation under the name of Rand Capital SBIC,
Inc. (“Rand SBIC”). The following discussion will describe the operations of Rand, its wholly-owned subsidiary
Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the “Corporation”).
     Throughout the Corporation’s history, its principal business has been to make venture capital investments in
small to medium sized companies that are engaged in the exploitation of new or unique products or services with a
sustainable competitive advantage, typically in New York and its surrounding states. The Corporation’s principal
investment objective is to achieve long-term capital appreciation while maintaining a current cash flow from its
debenture instruments. The Corporation invests in a mixture of debenture and equity instruments. The debt
securities most often have an equity piece attached to the debenture in the form of stock, warrants or options to
acquire stock or the right to convert the debt securities into stock. Rand SBIC was the primary investment vehicle in
2007 and 2008 and it is anticipated that will continue to be the case in 2009. Consistent with its status as a BDC and
the purposes of the regulatory framework for BDC’s under the 1940 Act, the Corporation provides managerial
assistance, often in the form of a board of director’s seat, to the portfolio companies in which it invests.
     The Corporation operates as an internally managed investment company whereby its officers and employees
conduct its operations under the general supervision of its Board of Directors. It has not elected to qualify to be
taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
     The Corporation is listed on the NASDAQ Small Capital Market under the symbol “Rand”.
     The Corporation’s website is www.randcapital.com. The Corporation’s annual report on Form 10-K and its
Proxy Statement are available at the following web address: http://materials.proxyvote.com/752185. In addition,
the annual report on Form 10-K, the quarterly reports on Form 10-Q, current reports on Form 8-K, charters for the
Corporation’s committees and other reports filed with the Securities and Exchange Commission (“SEC”) are
available through the Corporation’s website.

Regulation as a Business Development Company
     Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on
the operations of BDCs. Among other things, the 1940 Act contains prohibitions and restrictions relating to
transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters,
and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the
1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to
withdraw its election as, a BDC unless so authorized by a vote of the holders of a majority of its outstanding voting
securities. BDC’s are not required to maintain fundamental investment policies relating to diversification and
concentration of investments within a single industry. More specifically, in order to qualify as a BDC, a company
must:
          (1) be a domestic company;
          (2) have registered a class of its equity securities or have filed a registration statement with the
          SEC pursuant to Section 12 of the Securities Exchange Act of 1934;

                                                          1
          (3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely
          immature or emerging companies and businesses suffering or just recovering from financial distress;
          (4) extend significant managerial assistance to such portfolio companies; and
          (5) have a majority of “disinterested” directors (as defined in the 1940 Act). Generally, a BDC must be
          primarily engaged in the business of furnishing capital and providing managerial expertise to companies
          that do not have ready access to capital through conventional financial channels. Such portfolio
          companies are termed “eligible portfolio companies.”
     An eligible portfolio company is, generally, a private domestic operating company, or a public domestic
operating company whose securities are not listed on a national securities exchange. In addition, any small business
investment company that is licensed by the SBA and that is a wholly owned subsidiary of a BDC is an eligible
portfolio company.
      The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of
companies, such as brokerage firms, insurance companies, investment banking firms and investment companies.
Moreover, the 1940 Act limits the type of assets that BDCs may acquire to “qualifying assets” and certain assets
necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than
70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of
companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of
bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but
are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those
companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and
(4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can be purchased in order for the
securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not
involving a public offering and acquiring securities from the portfolio company or its officers, directors, or
affiliates.
     A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying
assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the
investment.
     A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in
which it invests. Making available significant managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide,
significant guidance and counsel concerning the management, operations or business objectives and policies of a
portfolio company.

SBIC Subsidiary
     Since 2002, Rand has operated a wholly-owned SBIC subsidiary in order to have access to the various forms of
leverage provided by the SBA to SBICs. Rand operates Rand SBIC, and Rand formerly operated the limited
partnership SBIC predecessor of Rand SBIC, for the same investment purposes and with investments in the same
kinds of securities as Rand. The operations of the SBIC predecessor were, and the operations of Rand SBIC are,
consolidated with those of Rand for both financial reporting and tax purposes.
     On May 28, 2002, Rand and the predecessor SBIC subsidiary filed an Exemption Application with the SEC
seeking an order for a number of operating exemptions that the SEC has commonly granted from certain restrictions
under the 1940 Act that would otherwise limit the operations of the wholly-owned subsidiary. After the filing of the
Exemption Application, the Corporation had extended discussions with the staff of the Division of Investment
Management of the SEC concerning the application. The principal substantive issue in these discussions was the
structure of the predecessor of Rand SBIC as a limited partnership.
     Rand formed the predecessor SBIC in 2002 as a limited partnership because that was the organizational form
that the SBA strongly encouraged for all new entities seeking licenses as SBICs. Rand organized the SBIC

                                                            2
subsidiary in a manner that was consistent with the SBA’s model limited partnership forms for licensed SBICs. In
that structure, the general partner of Rand SBIC was a limited liability company whose managers were the principal
executive officers of Rand.
      Under the rules and interpretations of the SEC applicable to BDCs (which the subsidiary SBIC intended to
become), if a BDC is structured in limited partnership form, then it must have general partners who serve as a board
of directors, or a general partner with very limited authority and a separate board of directors, all of the persons who
serve on the board of directors must be natural persons, and a majority of the directors must not be “interested
persons” of the BDC. Since the managers of the limited liability company general partner of the SBIC subsidiary
were the principal executive officers of Rand, and since both the limited liability company general partner and the
subsidiary SBIC were wholly-owned by Rand, Rand believed that the board of directors of Rand was the functional
equivalent of a board of directors for both the general partner limited liability company and for the SBIC limited
partnership. Nevertheless, the staff of the Division of Investment Management of the SEC maintained the view that
if the limited partnership subsidiary was to be operated as a limited partnership BDC in compliance with the
1940 Act, then the organizational documents of the limited partnership would have to specifically provide that it
would have a board of directors consisting of natural persons, a majority of whom would not be “interested
persons.”
     After lengthy discussions between Rand and the SBA, in December 2008 the SBA indicated that if Rand SBIC
were reorganized as a corporation whose directors were the directors of Rand, it would license the corporation as an
SBIC that would continue the operations of the limited partnership predecessor. Accordingly, Rand merged the
limited partnership subsidiary and its limited liability company general partner into Rand SBIC, effective on
December 31, 2008. As a result of the merger, Rand SBIC is a wholly-owned corporate subsidiary of Rand whose
board of directors is comprised of directors of Rand, a majority of whom are not “interested persons” of Rand or
Rand SBIC.
      On February 26, 2009, the Corporation filed an Exemption Application with the SEC seeking an order under
Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of, and Rule 17d-1 under, the 1940 Act for exemptions from the
application of Sections 12(d)(1), 18(a), 21(b), 57(a)(1), (2), (3), and (4), and 61(a) of the 1940 Act to certain aspects
of its operations. The application also seeks an order under Section 12(h) of the Securities Exchange Act of
1934 Act (the “Exchange Act”) for an exemption from separate reporting requirements for Rand SBIC under
Section 13(a) of the Exchange Act. In general, the Corporation’s application seeks exemptions that would permit:
     • Rand and Rand SBIC to engage in certain related party transactions that the Corporation would otherwise be
       permitted to engage in as a BDC if its component parts were organized as a single corporation;
     • Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage requirements for
       senior securities on a consolidated basis; and
     • Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports on a consolidated
       basis as part of Rand’s Exchange Act reports.
     The SEC has recently granted exemptions in response to applications that reflected similar issues and factual
circumstances, and Rand believes that it will receive the exemptions it has requested for the operation of Rand SBIC
as a BDC subsidiary of Rand.

Regulation of the SBIC Subsidiary
  SBA Lending Restrictions
     The SBA licenses SBICs as part of a program designed to stimulate the flow of private debt and/or equity
capital to small businesses. SBICs use funds borrowed from the SBA, together with their own capital, to provide
loans to, and make equity investments in, concerns that (a) do not have a net worth in excess of $18 million and do
not have average net income after U.S. federal income taxes for the two years preceding any date of determination
of more than $6 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or
number of employees, depending on the industry in which the concerns are primarily engaged. The types and dollar
amounts of the loans and other investments an SBIC that is a BDC may make are limited by the 1940 Act, the SBA

                                                           3
Act and SBA regulations. The SBA is authorized to examine the operations of SBICs, and an SBIC’s ability to
obtain funds from the SBA is also governed by SBA regulations.
     In addition, at the end of each fiscal year, an SBIC must have at least 20% (in total dollars) invested in “Smaller
Enterprises”. The SBA defines “Smaller Enterprises” as concerns that (a) do not have a net worth in excess of
$6 million and have average net income after U.S. federal income taxes for the preceding two years no greater than
$2 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of
employees, depending on the industry in which the concerns are primarily engaged. The Corporation has
maintained compliance with this requirement since inception of the SBIC subsidiary.
     SBICs may invest directly in the equity of their portfolio companies, but they may not become a general
partner of a non-incorporated entity or otherwise become jointly or severally liable for the general obligations of a
non-incorporated entity. An SBIC may acquire options or warrants in its portfolio companies, and the options or
warrants may have redemption provisions, subject to certain restrictions.

  SBA Leverage
     The SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are
pooled and sold to purchasers of the government guaranteed securities. The amount of funds that the SBA may lend
to SBICs is determined by annual Congressional appropriations.
     In order to obtain SBA borrowings, also known as leverage, an SBIC must demonstrate its need to the SBA. To
demonstrate need, an SBIC must invest 50% of its Leverageable Capital (defined as Regulatory Capital less
unfunded commitments and federal funds) and any outstanding SBA leverage. Other requirements include
compliance with SBA regulations, adequacy of capital, and meeting liquidity standards. An SBIC’s license entitles
an SBIC to apply for SBA leverage, but does not assure that it will be available, or if available, that it will be
available at the level of the relevant matching ratio. Availability depends on the SBIC’s continued regulatory
compliance and sufficient SBA funds being available when the SBIC applies to draw down SBA leverage. Under the
provisions of the SBIC regulations, the Corporation may apply for the SBA’s conditional commitment to reserve a
specific amount of leverage for future use. The Corporation may then apply to draw down leverage against the
commitment. All SBICs must obtain a leverage commitment in order to draw leverage from the SBA. Commitments
expire on September 30 of the fourth full fiscal year following issuance and require the payment of a fee equal to
1 percent of the total commitment at the time of issuance. An additional fee equal to 2 percent of the amount drawn
is deducted at the time of each draw.
     The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its approved debenture leverage as a
partial prepayment of the SBA’s nonrefundable 3% leverage fee. As of December 31, 2008, Rand SBIC had drawn
$8,100,000 in leverage from the SBA. The remaining leverage commitment expired on September 30, 2008 and
$1,900,000 of approved leverage expired. The remaining unamortized prepaid leverage fee of $19,000 was
expensed during 2008.
    SBA debentures are issued with 10-year maturities. Interest only is payable semi-annually until maturity.
Ten-year SBA debentures may be prepaid with a penalty during the first 5 years, and then are pre-payable without
penalty. Rand initially capitalized Rand SBIC with $5 million in Regulatory Capital. The Corporation expects to use
Rand SBIC as its primary investment vehicle.

Employees
     As of December 31, 2008, the Corporation had four employees.

Item 1A. Risk Factors
  The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
     There is typically no public market for equity securities of the small privately held companies in which the
Corporation invests. As a result, the valuations of the equity securities in the Corporation’s portfolio are stated at fair
value as determined by the good faith estimate of the Corporation’s Board of Directors. In the absence of a readily

                                                            4
ascertainable market value, the estimated value of the Corporation’s portfolio of securities may differ significantly,
favorably or unfavorably, from the values that would be placed on the portfolio if a ready market for the equity
securities existed. Any changes in estimated value are recorded in the statement of operations as “Net increase in
unrealized appreciation.”

  The Corporation’s Portfolio Investments are Illiquid

     Most of the investments of the Corporation are or will be either equity securities acquired directly from small
companies or subordinated debt securities. The Corporation’s portfolio of equity and debt securities is, and will
usually be, subject to restrictions on resale or otherwise has no established trading market. The illiquidity of most of
the Corporation’s portfolio may adversely affect the ability of the Corporation to dispose of the securities at times
when it may be advantageous for the Corporation to liquidate investments.

  Investing in Private Companies involves a High Degree of Risk

     The Corporation typically invests a substantial portion of its assets in small and medium sized private
companies. These private businesses may be thinly capitalized, unproven companies with risky technologies, may
lack management depth, and may not have attained profitability. Because of the speculative nature and the lack of a
public market for these investments, there is significantly greater risk of loss than is the case with traditional
investment securities. The Corporation expects that some of its venture capital investments will be a complete loss
or will be unprofitable and that some will appear to be likely to become successful but never realize their potential.
The Corporation has been risk seeking rather than risk averse in its approach to venture capital and other
investments.

     Even if the Corporation’s portfolio companies are able to develop commercially viable products, the market
for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict
and the marketing efforts of the portfolio companies may not be successful.

  Investing in the Corporation’s Shares May be Inappropriate for the Investor’s Risk Tolerance

     The Corporation’s investments, in accordance with its investment objective and principal strategies, result in a
greater than average amount of risk and volatility and may well result in loss of principal. Its investments in
portfolio companies are highly speculative and aggressive and, therefore, an investment in its shares may not be
suitable for investors for whom such risk is inappropriate. Neither the Corporation’s investments nor an investment
in the Corporation is intended to constitute a balanced investment program.

  The Corporation is Subject to Risks Created by its Regulated Environment

     The Corporation is regulated by the SBA and the SEC. Changes in the laws or regulations that govern SBICs
and BDCs could significantly affect the Corporation’s business. Regulations and laws may be changed periodically,
and the interpretations of the relevant regulations and laws are also subject to change. Any change in the regulations
and laws governing the Corporation’s business could have a material impact on its financial condition or its results
of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place conflicting demands on
the manner in which the Corporation operates, and the resolution of those conflicts may restrict or otherwise
adversely affect the operations of the Corporation.

  The Corporation is Subject to Risks Created by Borrowing Funds from the SBA

     The Corporation’s Leverageable Capital may include large amounts of debt securities issued through the SBA,
and all of the debentures will have fixed interest rates. Until and unless the Corporation is able to invest substantially
all of the proceeds from debentures at annualized interest or other rates of return that substantially exceed
annualized interest rates that Rand SBIC must pay the SBA, the Corporation’s operating results may be adversely
affected which may, in turn, depress the market price of the Corporation’s common stock.

                                                            5
  The Corporation is Dependent Upon Key Management Personnel for Future Success

     The Corporation is dependent on the diligence and skill of its two senior officers, Allen F. Grum and Daniel P.
Penberthy, for the selection, structuring, closing and monitoring of its investments. The future success of the
Corporation depends to a significant extent on the continued service and coordination of its senior management
team. The departure of either of its executive officers could materially adversely affect its ability to implement its
business strategy. The Corporation does not maintain key man life insurance on any of its officers or employees.

  The Corporation Operates in a Competitive Market for Investment Opportunities

      The Corporation faces competition in its investing activities from many entities including other SBICs, private
venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign
investors. The competition is not limited to entities that operate in the same geographical area as the Corporation. As
a regulated BDC, the Corporation is required to disclose quarterly and annually the name and business description
of portfolio companies and the value of its portfolio securities. Most of its competitors are not subject to this
disclosure requirement. The Corporation’s obligation to disclose this information could hinder its ability to invest in
certain portfolio companies. Additionally, other regulations, current and future, may make the Corporation less
attractive as a potential investor to a given portfolio company than a private venture capital fund.

  The Corporation May be Negatively Affected by Adverse Changes in the General Economic Conditions of
  the Domestic and Global Markets

     The continued economic crisis and related turmoil in the global financial markets has had and may continue to
have an impact on the Corporation’s portfolio companies and the overall financial condition of the Corporation. If
the current market conditions continue to deteriorate, the Corporation may suffer further losses on its investment
portfolio, which could have a material adverse effect on Net Asset Value.

  Fluctuations of Quarterly Results

     The Corporation’s quarterly operating results could fluctuate significantly as a result of a number of factors.
These factors include, among others, variations in and the timing of the recognition of realized and unrealized gains
or losses, the degree to which portfolio companies encounter competition in their markets, and general economic
conditions. As a result of these factors, results for any one quarter should not be relied upon as being indicative of
performance in future quarters.

Item 1B.    Unresolved Staff Comments

     Not Applicable

Item 2.    Properties

    The Corporation maintains its offices at 2200 Rand Building, Buffalo, New York 14203, where it leases
approximately 1,300 square feet of office space pursuant to a lease agreement that expires December 31, 2010. The
Corporation believes that its leased facilities are adequate to support its current staff and expected future needs.

Item 3.    Legal Proceedings

     None

Item 4.    Submission of Matters to a Vote of Security Holders

     None

                                                          6
                                                                       Part II

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
            Equity Securities
     The Corporation’s common stock, par value $0.10 per share (“Common Stock”), is traded on the NASDAQ
Small Cap Market (“NASDAQ”) under the symbol “RAND.” The following table sets forth, for the periods
indicated, the range of high and low closing sales prices per share as reported by NASDAQ:
     2008 Quarter ending:                                                                                              High    Low

     March 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      .............   $4.78   $3.55
     June 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   .............   $4.29   $3.25
     September 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        .............   $4.00   $3.25
     December 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       .............   $4.00   $3.11

     2007 Quarter ending:                                                                                              High    Low

     March 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      .............   $5.04   $3.26
     June 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   .............   $3.94   $3.26
     September 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        .............   $4.62   $3.35
     December 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       .............   $4.72   $3.50
     The Corporation did not sell any securities during the period covered by this report that were not registered
under the Securities Act. The Corporation has not paid any cash dividends in its most recent two fiscal years, and it
has no intention of paying cash dividends in the coming fiscal year.

Profit Sharing and Stock Option Plans
     In July 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option
Plan (the “Plan”). The Plan provides for the award of options to purchase up to 200,000 common shares to eligible
employees. In 2002, the Corporation placed the Plan on inactive status as it developed a new profit sharing plan for
the Corporation’s employees in connection with the establishment of its SBIC subsidiary. As of December 31, 2008
no stock options had been awarded under the Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of
a profit sharing plan for the officers and employees of a BDC where any option, warrant or right is outstanding under
an executive compensation plan, no options will be granted under the Plan while any profit sharing plan is in effect
with respect to the Corporation.
     In 2002, the Corporation established a non-equity incentive Profit Sharing Plan for its executive officers in
accordance with Section 57(n) of the Investment Company Act of 1940 (the “1940 Act”). The profit sharing plan
provides for incentive compensation to the named executive officers based on a stated percentage of net realized
capital gains and after reduction for realized and unrealized losses on the Rand SBIC investment portfolio. Any
profit sharing paid cannot exceed 20% of the Corporation’s net income, as defined. There have been no accruals for,
or contributions to, the Profit Sharing Plan since its inception in 2002.

  Shareholders of Record
     On March 6, 2009 the Corporation had a total of 820 shareholders, which included 97 record holders of its
common stock, and an estimated 723 shareholders with shares beneficially owned in nominee name or under
clearinghouse positions of brokerage firms or banks.

  Stock Repurchase Plan
     The Board of Directors has authorized the repurchase of up to 285,947 shares of the Corporation’s outstanding
Common Stock on the open market at prices that are no greater than current net asset value through October 23,
2009. During 2003 and 2002 the Corporation purchased 44,100 shares of its Common Stock for a total cost of
$47,206. No additional shares have been repurchased since 2003.

                                                                            7
Company Performance Graph
     The following graph shows a five-year comparison of cumulative total shareholder returns for the Company’s
Common Stock, the NASDAQ Market Index, and a New Peer Group and the Old Peer Group, assuming a base index
of $100 at the end of 2003. The cumulative total return for each annual period within the five years presented is
measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement period, assuming
dividend investment, and (B) the difference between share prices at the end and at the beginning of the measurement
period by (2) the share price at the beginning of the measurement period.


                         COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
                                   AMONG RAND CAPITAL CORP.,
                           NASDAQ MARKET INDEX AND PEER GROUP INDEX




                300
                          RAND CAPITAL CORP.
                250       OLD PEER GROUP INDEX
                          NASDAQ MARKET INDEX
     DOLLARS




                200       NEW PEER GROUP INDEX

                150

                100

                 50

                  0
                  2003          2004               2005               2006               2007               2008




                               ASSUMES $100 INVESTED ON DEC. 31, 2003
                                   ASSUMES DIVIDEND REINVESTED
                                  FISCAL YEAR ENDING DEC. 31, 2008
                  COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
               COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
                                           FISCAL YEAR ENDING
COMPANY/INDEX/MARKET                                12/31/2003 12/31/2004 12/30/2005 12/29/2006 12/31/2007 12/31/2008
 Rand Capital Corporation                            100.00     107.59        92.41   241.38     248.14     241.38
 Old Peer Group Index                                100.00     101.62        95.36   132.43      87.47      18.67
 New Peer Group Index                                100.00     108.41       110.79   122.16     134.29      79.25
 NASDAQ Market Index                                 100.00     101.62        95.36   130.52      91.89      34.03

     The Old Peer Group was made up of the following securities:
         Ameritrans Capital Corp (NasdaqCM:AMTC)
         Brantley Capital Corp (OTC:BBDC.pk)
         Capital Southwest Corp (NasdaqGM:CSWC)

                                                          8
           Equus Total Return Inc (NYSE:EQS)
           Gladstone Investment CP (NasdaqGS:GAIN)
           Harris & Harris Group (NasdaqGM:TINY)
           Macc Private Equities Inc (NasdaqCM:MACC)
           MCG Capital Corporation (NasdaqGS:MCGC)
           MVC Capital Inc (NYSE:MVC)
     The New Peer Group is made up of the following securities:
         Ameritrans Capital Corp (NasdaqCM:AMTC)
         Equus Total Return Inc (NYSE:EQS)
         Gladstone Investment CP (NasdaqGS:GAIN)
         Harris & Harris Group (NasdaqGM:TINY)
         Hercules Tech Growth Cap (NasdaqGS: HTGC)
         Main Street Capital Corp (NasdaqGS: MAIN)
         MCG Capital Corporation (NasdaqGS:MCGC)
         Patriot Capital Funding (NasdaqGS: PCAP)
         Triangle Capital Corp (NasdaqGM: TCAP)
     The New Peer Group was selected in good faith by the Corporation and contains nine business development
companies or other funds believed by the Corporation to be of similar size and have similar investment objectives to
those of the Corporation.
     The performance graph information provided above will not be deemed to be “soliciting material” or “filed”
with the SEC or subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act,
unless in the future the Corporation specifically requests that the information be treated as soliciting material or
specifically incorporates it by reference into any filing under the Securities Act or the Securities Exchange Act.

Item 6.    Selected Financial Data
      The following table provides selected consolidated financial data of the Corporation for the periods indicated.
You should read the selected financial data set forth below in conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and with our consolidated financial statements and
related notes appearing elsewhere in this report.

     Balance Sheet Data as of December 31:
                                           2008            2007            2006            2005            2004

     Total assets . . . . . . . . .   $32,228,797     $32,722,151     $29,463,944     $16,063,605     $12,743,109
     Total liabilities . . . . . .    $12,001,831     $12,904,328     $12,681,539     $ 7,447,671     $ 3,716,055
     Net assets . . . . . . . . . .   $20,226,966     $19,817,823     $16,782,405     $ 8,615,934     $ 9,027,054
     Net asset value per
       outstanding share . . .        $        3.54   $        3.47   $        2.93   $        1.51   $        1.58
     Common stock shares
       outstanding . . . . . . .          5,718,934       5,718,934       5,718,934       5,718,934       5,718,934




                                                                  9
Operating Data for the year ended December 31:
                                           2008          2007         2006           2005         2004

Investment income . . . . . . . .       $1,757,003    $2,302,870   $ 1,326,962    $ 736,573     $ 757,704
Total expenses . . . . . . . . . . .    $1,721,555    $1,650,947   $ 1,519,184    $1,265,846    $ 900,812
Net investment gain (loss) . . .        $ 135,689     $ 425,406    $(1,264,802)   $ (175,179)   $(112,384)
Net realized (loss) gain on
  sales and dispositions of
  investments . . . . . . . . . . . .             —   $ (68,748)   $ 3,456,441    $ (382,353)   $ 26,727
Net increase (decrease) in
  unrealized appreciation . . .         $ 273,454     $2,362,507   $ 5,974,832    $ 146,412     $(125,777)
Net increase (decrease) in net
  assets from operations . . . .        $ 409,143     $2,719,165   $ 8,166,471    $ (411,120)   $(211,434)




                                                        10
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
     You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with our financial statements and related notes included elsewhere in this report.

Forward Looking Statements
     Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this document that do not relate to present or historical conditions are “forward-
looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, and in
Section 21F of the Securities Exchange Act of 1934. Additional oral or written forward-looking statements may
be made by the Corporation from time to time, and those statements may be included in documents that are filed
with the Securities and Exchange Commission. Such forward-looking statements involve risks and uncertainties
that could cause results or outcomes to differ materially from those expressed in the forward-looking statements.
Forward-looking statements may include, without limitation, statements relating to the Corporation’s plans,
strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,”
“intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to
identify forward-looking statements. Among the important factors on which such statements are based are
assumptions concerning the state of the national economy and the local markets in which the Corporation’s
portfolio companies operate, the state of the securities markets in which the securities of the Corporation’s
portfolio company trade or could be traded, liquidity within the national financial markets, and inflation.
Forward-looking statements are also subject to the risks and uncertainties described under the caption “Risk
Factors” contained in Part I, Item 1A, which is incorporated herein by reference.
     There may be other factors that we have not identified that affect the likelihood that the forward-looking
statements may prove to be accurate. Further, any forward-looking statement speaks only as of the date it is made
and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to
develop as we expect, and we cannot predict all of them.

Business Overview
     Rand Capital Corporation (“Rand”) was incorporated under the law of New York on February 24, 1969.
Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was
registered under Section 8 of the Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001, Rand
elected to be treated as a business development company (“BDC”) under the 1940 Act. In 2002, Rand formed a
wholly-owned subsidiary for the purpose of operating it as a small business investment company (“SBIC”) licensed
by the U.S. Small Business Investment Administration (“SBA”). The subsidiary received an SBA license to operate
as an SBIC in August 2002. The subsidiary, which had been organized as a Delaware limited partnership, was
converted into a New York corporation on December 31, 2008, at which time its operations as a licensed small
business investment company were continued by a newly formed corporation under the name of Rand Capital
SBIC, Inc. (“Rand SBIC”). The following discussion will describe the operations of Rand, its wholly-owned
subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the “Corporation”).
     The Corporation anticipates that most, if not all, of its investments in the next year will be originated through
the SBIC subsidiary.
     The Corporation’s primary business is making investments in companies, usually in the form of subordinated
debt, membership interests, or preferred and common stock. The investment focus is usually on small and medium-
sized companies that meet certain criteria, including:
          1) a qualified and experienced management team
          2) a new or unique product or service with a sustainable competitive advantage

                                                         11
          3) a potential for growth in revenue and cash flow
          4) a potential to realize appreciation in an equity position, if any.
     The Corporation makes investments in portfolio companies that typically range from $500,000 to $1,000,000
and it invest either directly in the equity of a company through equity shares or in a debt instrument. The debt
instruments generally have a maturity of not more than five years and usually have detachable equity warrants.
Interest is either paid currently or deferred.
      The Corporation’s management team identifies investment opportunities. Throughout the Corporation’s history
it has established a large network of investment referral relationships. Investment proposals may, however, come to the
Corporation from many other sources, and may include unsolicited proposals from the public and referrals from
banks, lawyers, financial accountants and other members of the financial community. The Corporation believes that its
reputation in the community and experience provide a competitive advantage in originating qualified new
investments.
     In a typical private financing, the management team of the Corporation will review, analyze, and confirm,
through due diligence, the business plan and operations of the potential portfolio company. Additionally, the
Corporation will become familiar with the portfolio company’s industry and competitive landscape and may
conduct additional reference checks with customers and suppliers of the portfolio company.
     Following an initial investment in a portfolio company, the Corporation may be requested to make follow-on
investments in the company. Follow-on investments may be made to take advantage of warrants or other preferential
rights granted to the Corporation or otherwise to increase or maintain the Corporation’s position in a promising
portfolio company. The Corporation may also be called upon to provide an additional investment to a portfolio
company in order for that company to fully implement its business plans, to develop a new line of business or to
recover from unexpected business problems. Follow-on investments in a portfolio company are evaluated
individually and may be subject to regulatory restrictions.
      The Corporation will exit its investments generally through the maturation of the debt security or when a
liquidity event takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The
method and timing of the disposition of the Corporation’s portfolio investments can be critical to the realization of
maximum total return. The Corporation generally expects to dispose of its equity securities through the private sales
of securities to other investors or through an outright sale of the company or a merger. The Corporation anticipates
its debentures will be repaid with interest and hopes to realize further appreciation from the warrants or other equity
type instruments it receives in connection with the origination of the debenture. The Corporation anticipates
generating cash for new investments and operating expenses through SBA leverage draw downs, and interest and
principal payments from its portfolio concerns.

2008 Highlights and Outlook
     The Corporation’s net asset value increased $0.07, or 2% during 2008, closing the year at $3.54 per share up
from $3.47 at December 31, 2007. At December 31, 2008, the Corporation’s total investment portfolio was valued at
$28.1 million, which exceeds its cost basis of $14.4 million, reflecting $13.7 million in net unrealized appreciation.
     Although the Corporation’s stock traded at a premium to its net asset value during 2007, during 2008 its
common stock traded in a range that was above and below the current net asset value per share. The year closed with
the stock trading at $3.50 which represented a slight discount to the net asset value of $3.54.
     During 2008 the Corporation recognized $1,757,003 in total investment income, a decrease of ($545,867) from
$2,302,870 of investment income in 2007. The 23.7% decrease is attributable to the decrease in dividends and
interest from portfolio companies. Dividends from portfolio companies that are limited liability companies can
fluctuate based on the portfolio companies’ profitability and the timing of distributions. In addition, lower cash
balances in the current year caused the interest income to decrease.
     Also during 2008 certain portfolio companies repaid some or all of their outstanding debenture instruments,
including: Contract Staffing, Gemcor and New Monarch Machine Tool, Inc. These repayments may impact future
earnings by reducing interest income in 2009 and future periods.

                                                          12
     The cash balance at December 31, 2008 was $2.8 million which was approximately $1.6 million lower than at
the end of 2007. The Corporation was unable to draw the remaining $1.9 million of outstanding leverage available
from the Small Business Administration (SBA), due to Rand SBIC’s excess cash position, and the leverage expired
in September 2008. Given that the Corporation has used up much of its available SBA leverage, in order for the
Corporation to raise substantial amounts of capital in the short term, it will need to rely on Rand’s ability to sell
additional shares of its common stock through public or private offerings. Although Rand currently has no specific
plans concerning the timing or amount of any common stock offering it might make, it is considering the possibility
of making an offering at some time in the next year in order to have more capital available with which to pursue
favorable investment opportunities. See “Liquidity and Capital Resources,” below.

      While the business of some of our portfolio companies is strengthening, in terms of employee growth, increase
in revenue, and strengthening net income position, it remains difficult to forecast when future exits will happen, or if
the portfolio companies will have sufficient capital to remain viable while their respective markets mature.


Critical Accounting Policies

     The Corporation prepares its financial statements in accordance with United States generally accepted
accounting principles (GAAP), which requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities. For a summary of all significant accounting policies, including critical accounting
policies, see Note 1 to the consolidated financial statements in Item 8.

     The increasing complexity of the business environment and applicable authoritative accounting guidance
require the Corporation to closely monitor its accounting policies and procedures. The Corporation has identified
two critical accounting policies that require significant judgment. The following summary of critical accounting
policies is intended to enhance your ability to assess the Corporation’s financial condition and results of operations
and the potential volatility due to changes in estimates.


  Valuation of Investments

      The most important estimate inherent in the preparation of the Corporation’s consolidated financial statements
is the valuation of its investments and the resulting unrealized appreciation or depreciation.

      Investments are valued at fair value as determined in good faith by the management of the Corporation and
submitted to the Board of Directors for approval. There is no single standard for determining fair value in good faith.
As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each
portfolio investment while employing a consistently applied valuation process for investments. The Corporation
analyzes and values each investment on a quarterly basis, and records unrealized depreciation for an investment that
it believes has become impaired, including where collection of a loan or realization of the recorded value of an
equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that the
underlying portfolio company has appreciated in value and, therefore, its equity security has also appreciated in
value. These estimated fair values may differ from the values that would have been used had a ready market for the
investments existed and these differences could be material if our assumptions and judgments differ from results of
actual liquidation events.

      In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (“SFAS”) 157, Fair Value Measurements. This statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This
statement was effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years. On January 1, 2008, the Corporation adopted SFAS 157.

     SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

          Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s
          valuation at the measurement date.

                                                          13
          Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or
          similar assets or liabilities in markets that are not active, or other observable inputs other than quoted
          prices.
          Level 3:   Unobservable and significant inputs to determining the fair value.
     Most of the Corporation’s investments are classified in Level 3 due to their privately held restricted nature.
     In the valuation process, the Corporation uses financial information received monthly, quarterly, and annually
from its portfolio companies, which includes both audited and unaudited financial statements, annual projections
and budgets prepared by the portfolio company and other financial and non-financial business information supplied
by the portfolio companies’ management. This information is used to determine financial condition, performance,
and valuation of the portfolio investments. The valuation may be reduced if a company’s performance and potential
have significantly deteriorated. If the factors which led to the reduction in valuation are overcome, the valuation
may be restored.
     Another key factor used in valuing equity investments is recent arms-length equity transactions with unrelated
new investors entered into by the portfolio company that the Corporation utilizes to form a basis for its underlying
value. Many times the terms of these equity transactions may not be identical to the equity transactions between the
portfolio company and the Corporation, and the impact of the discrepancy in transaction terms on the market value
of the portfolio company may be difficult or impossible to quantify.
     Any changes in estimated fair value are recorded in our statement of operations as “Net increase in unrealized
appreciation.”

  Revenue Recognition (Interest Income)
     Interest income generally is recognized on the accrual basis except where the investment is in default or
otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible
losses on interest receivable is maintained when appropriate. Certain investments of the Corporation are structured
to provide a deferred interest period when interest is not currently due.
      Rand SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting
Requirements for Small Business Investment Companies”. Under these rules interest income cannot be recognized
if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in
doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or the loan
is in default more than 120 days. Management also utilizes other qualitative and quantitative measures to determine
the value of a portfolio investment and the collectability of any accrued interest.

Recent Accounting Pronouncements
     In September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements. This statement
defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Corporation adopted the enhanced disclosure provisions of SFAS 157 during 2008.
     Management does not believe that any other recently issued, but not yet effective, accounting standards, if
currently adopted, would have a material effect on the accompanying consolidated financial statements.




                                                          14
Financial Condition
  Overview:
                                                                                                           (Decrease)        % (Decrease)
                                                                   12/31/08              12/31/07           Increase          Increase

     Total assets . . . . . . . . . . . . . . . . . . . . . . . $32,228,797          $32,722,151          $(493,354)            (1.5)%
     Total liabilities . . . . . . . . . . . . . . . . . . . . 12,001,831             12,904,328           (902,497)            (7.0)%
     Net assets . . . . . . . . . . . . . . . . . . . . . . . . $20,226,966          $19,817,823          $ 409,143              2.1%

    Net asset value per share (NAV) was $3.54 per share at December 31, 2008 versus $3.47 per share at
December 31, 2007.
      The Corporation did not draw down on any of the SBA leverage during the year ended December 31, 2008 and
the total owed to the SBA at December 31, 2008 was $8,100,000. These debentures bear a fixed interest rate and an
annual fee, averaging 5.9%, payable semi-annually. The debenture principal is repayable in full 10 years from
issuance beginning in 2014.
    Cash and cash equivalents approximated 14% of net assets at December 31, 2008 compared to 22% at
December 31, 2007.
     The effect of investment income, realized losses and the change in unrealized appreciation on investments
resulted in a net decrease in the net deferred tax liability from $3,955,000 at December 31, 2007 to $3,490,000 at
December 31, 2008.

Composition of the Corporation’s Portfolio
     The Corporation’s financial condition is dependent on the success of its portfolio holdings. It has invested a
substantial portion of its assets in small to medium-sized companies. The following summarizes the Corporation’s
investment portfolio at the year-ends indicated.
                                                                    12/31/08              12/31/07            Increase        % Increase

     Investments, at cost . . . . . . . . . . . . . . . . . $14,386,451               $13,390,644          $ 995,807              7.4%
     Unrealized appreciation, net . . . . . . . . . . . 13,739,831                     13,137,846            601,985              4.6%
     Investments, at fair value . . . . . . . . . . . . . $28,126,282                 $26,528,490          $1,597,792             6.0%

     The Corporation’s total investments at fair value, as estimated by the Board of Directors, approximated 139%
of net assets at December 31, 2008 and 134% of net assets at December 31, 2007.
     The change in investments, at cost, is comprised of the following:
     New Investments:                                                                                                          Amount

     GridApp Systems, Inc. (GridApp) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 666,667
     Niagara Dispensing Technologies, Inc. (Niagara Dispensing). . . . . . . . . . . . . . . . . . . . .                       374,990
     SOMS Technologies, LLC (SOMS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               250,000
     Associates Interactive, LLC (Associates) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            200,000
     Mezmeriz, Inc. (Mezmeriz) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       100,000
     Rocket Broadband Networks, Inc. (Rocket Broadband) . . . . . . . . . . . . . . . . . . . . . . . . .                       35,000
     Total of investments made during the year ended December 31, 2008 . . . . . . . . . . .                                 $1,626,657
     Other Changes to investments:
     APF Group, Inc. (APF) interest conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               40,832
     Niagara Dispensing interest conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             41,783
     Total of new investments and changes to investments during the year ended
       December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $1,709,272


                                                                      15
     Sales/Investment Repayments                                                                                                          Amount

     New Monarch Machine Tool, Inc. (Monarch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           (520,147)
     Contract Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (131,066)
     Gemcor II, LLC (Gemcor). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  (62,252)
     Total of sales and investment repayments during the year ended December 31,
       2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (713,465)
     Total change in investment balance, at cost, during the year ended December 31,
       2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 995,807

     The Corporation’s top five portfolio companies represented 68% of total assets at December 31, 2008:
                                                                                                           Fair Value at         % of Total Assets
                                                                                                           December 31,          at December 31,
     Company                                                             Industry                              2008                    2008

     Innov-X Systems, Inc.
       (Innov-X) . . . . . . . . . . . . . . .         Manufacturing — Metals                              $8,761,700                     27%
                                                       Testing Equipment
     Gemcor . . . . . . . . . . . . . . . . . .        Manufacturing — Aerospace                           $5,803,201                     18%
                                                       Machinery
     Synacor Inc. (Synacor) . . . . . . .              Software                                            $4,168,001                     13%
     Kionix, Inc . (Kionix) . . . . . . . .            Manufacturing — Silicon Chips                       $2,000,000                      6%
     Ultra-Scan Corporation (Ultra-
       Scan) . . . . . . . . . . . . . . . . . .       Electronics —                                       $1,203,000                      4%
                                                       Hardware/Software
     The Corporation’s top five portfolio companies represented 61% of total assets at December 31, 2007:
                                                                                                           Fair Value at         % of Total Assets
                                                                                                           December 31,          at December 31,
     Company                                                             Industry                              2007                    2007

     Innov-X . . . . . . . . . . . . . . . . . .       Manufacturing — Metals                              $8,761,700                     27%
                                                       Testing Equipment
     Synacor . . . . . . . . . . . . . . . . . .       Software                                            $4,168,001                     13%
     Gemcor . . . . . . . . . . . . . . . . . .        Manufacturing — Aerospace                           $4,165,451                     13%
                                                       Machinery
     Carolina Skiff LLC (Carolina
       Skiff) . . . . . . . . . . . . . . . . . .      Manufacturing — Boating                             $1,227,000                      4%
     Kionix . . . . . . . . . . . . . . . . . . .      Manufacturing — Silicon Chips                       $1,221,568                      4%
    Below is the Geographic breakdown of the Corporation’s investments, at fair value, to the net asset value as of
December 31, 2008 and 2007:
                                                                                      % of Net Asset Value at            % of Net Asset Value at
     Geographic Region                                                                 December 31, 2008                  December 31, 2007

     USA – East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     95%                                 94%
     USA – South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       5%                                  6%
                                                                                                  100%                                  100%




                                                                            16
     As of December 31, 2008 and 2007, the Corporation’s investment portfolio consisted of the following
investments:
                                                                                 Percentage of                      Percentage of
                                                                   Cost          Total Portfolio     Fair Value     Total Portfolio

     December 31, 2008:
     Subordinated Debt and Promissory
       Notes . . . . . . . . . . . . . . . . . . . . . . .      $ 3,240,266            23%          $ 2,111,013            8%
     Convertible Debt . . . . . . . . . . . . . . . .               356,667             2%              356,667            1%
     Equity and Partnership Interests . . . . .                  10,721,519            75%           25,525,261           91%
     Equity Warrants . . . . . . . . . . . . . . . . .               68,000            —                133,341           —
        Total . . . . . . . . . . . . . . . . . . . . . . . .   $14,386,452           100%          $28,126,282          100%
     December 31, 2007:
     Subordinated Debt and Promissory
       Notes . . . . . . . . . . . . . . . . . . . . . . .      $ 3,992,927            30%          $ 3,071,009           11%
     Convertible Debt . . . . . . . . . . . . . . . .                50,000            —                 50,000           —
     Equity and Partnership Interests . . . . .                   9,279,717            69%           23,274,140           88%
     Equity Warrants . . . . . . . . . . . . . . . . .               68,000             1%              133,341            1%
        Total . . . . . . . . . . . . . . . . . . . . . . . .   $13,390,644           100%          $26,528,490          100%

Results of Operations
  Investment Income
      The Corporation’s investment objective is to achieve long-term capital appreciation on its equity investments
while maintaining a current cash flow from its debenture and pass through equity instruments. Therefore, the
Corporation invests in a mixture of debenture and equity instruments, which will provide a current return on a
portion of the investment portfolio. The equity features contained in our investment portfolio are structured to
realize capital appreciation over the long-term and may not generate current income in the form of dividends or
interest. In addition, the Corporation earns interest income from investing its idle funds in money market
instruments held at high grade financial institutions.

  Comparison of the years ended December 31, 2008 and 2007
                                                                    December 31,     December 31,
                                                                        2008             2007          (Decrease)    % (Decrease)

     Interest from portfolio companies. . . . . . . .               $ 608,180         $ 618,430       $ (10,250)         (1.7)%
     Interest from other investments . . . . . . . . .                  90,660           173,664        (83,004)        (47.8)%
     Dividend and other investment income . . . .                    1,027,377         1,469,864       (442,487)        (30.1)%
     Other income . . . . . . . . . . . . . . . . . . . . . .           30,786            40,912        (10,126)        (24.8)%
     Total investment income . . . . . . . . . . . . . .            $1,757,003        $2,302,870      $(545,867)        (23.7)%

     Interest from portfolio companies — The portfolio interest income decrease is a result of several factors. Two
portfolio companies (Contract Staffing and Monarch) repaid their debt instruments during the last twelve months
and one portfolio company (Niagara Dispensing) converted its debenture instrument into equity during 2008.
During the year ended December 31, 2007 the Corporation recognized Original Issue Discount (OID) income on its
Adampluseve, Inc (Adampluseve) investment in the amount of $62,333. Adampluseve paid off its debenture
instrument early and therefore the remaining unamortized OID was accreted into income during 2007. OID is
created when the Corporation invests in a debenture instrument that has a warrant attached to the instrument. This
requires an allocation of a portion of the investment cost to the warrant and reduces the debt instrument by an equal
amount in the form of a note discount or OID. The note is then reported net of the discount and the discount is
accreted into income over the life of the debenture instrument

                                                                       17
     These aforementioned decreases in the current year portfolio interest income are offset by several revenue
items that increased portfolio income. The Corporation began to recognize dividends on the Series A Convertible
Preferred Stock of Innov-X during the year ended December 31, 2008. These dividends resulted from the
re-negotiation of the preferred stock terms and provided for an 8% cumulative deferred return while the investment
is outstanding. The amount recognized during the year ended December 31, 2008 was $162,413. This dividend is
classified as portfolio interest income and this revenue classification is consistent with other interest bearing
instruments in the portfolio. Interest of $43,067 was recognized on the escrow from Innov-X during 2008. The
Innov-X escrow of $711,249 and the earned interest of $43,067 were received in the second quarter of 2008.
    After reviewing the portfolio companies’ performance and the circumstances surrounding the investments, the
Corporation has ceased accruing interest income on the following investment instruments:
                                                                                        Interest   Investment      Year that Interest
     Company                                                                             Rate         Cost          Accrual Ceased

     G-Tec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ..........       8% $400,000                  2004
     Rocket Broadband . . . . . . . . . . . . . . . . . . . . . .          ..........   11.25%   35,000                  2008
     UStec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ..........       5% 100,000                   2006
     WineIsIt.com (Wineisit). . . . . . . . . . . . . . . . . .            ..........      10% 801,918                   2005
    Interest from other investments — The decrease in interest income is due to lower cash balances coupled with
lower yields on these cash balances.
      Dividend and other investment income — Dividend income is comprised of distributions from Limited
Liability Companies (LLC’s) in which the Corporation has invested. The Corporation’s investment agreements with
certain LLC companies require the entities to distribute funds to the Corporation for payment of income taxes on its
allocable share of the entities’ profits. These dividends will fluctuate based upon the profitability of the entities and
the timing of the distributions.
    Dividend income for the year ended December 31, 2008 consisted of distributions from Gemcor for $974,287,
Carolina Skiff for $19,838 and Somerset Gas Transmission Company (Somerset) for $33,252.
     Dividend income for the year ended December 31, 2007 consisted of distributions from Gemcor for
$1,372,407, Carolina Skiff for $40,464, Somerset for $36,788, Topps Meat Company LLC (Topps) for
$19,524, and Vanguard Modular Building Systems (Vanguard) for $681.
     Other income — Other income consists of the revenue associated with the amortization of financing fees
charged to the portfolio companies upon successful closing of Rand SBIC financing. The SBA regulations limit the
amount of fees that can be charged to a portfolio company, and the Corporation typically charges 1% to 3% to the
portfolio concerns. These fees are amortized ratably over the life of the instrument associated with the fees. The
unamortized fees are carried on the balance sheet under “Deferred revenue”. In addition, other income includes fees
charged by the Corporation to its portfolio companies for attendance at the portfolio companies’ board meetings.
     Other income decreased due to the fact that the Corporation has not charged any of its new portfolio companies
financing fees in the last two years. The annualized financing fee income based on the existing portfolio will be
approximately $6,700 in 2009 and $2,700 in 2010. In addition board attendance income amounted to $14,000 for
the year ended December 31, 2008 and $13,000 for year ended December 31, 2007.

  Comparison of the years ended December 31, 2007 and 2006
                                                                    December 31,    December 31,      (Decrease)       % (Decrease)
                                                                        2007            2006           Increase         Increase

     Interest from portfolio companies . . . . . . .                $ 618,430       $ 757,824        $ (139,394)          (18.4)%
     Interest from other investments . . . . . . . . .                 173,664         53,104           120,560           227.0%
     Dividend and other investment income . . .                      1,469,864        432,296         1,037,568           240.0%
     Other income . . . . . . . . . . . . . . . . . . . . . .           40,912         83,738           (42,826)          (51.1)%
     Total investment income. . . . . . . . . . . . . .             $2,302,870      $1,326,962       $ 975,908              73.5%

                                                                           18
     Interest from portfolio companies — The portfolio interest income decrease can be attributed to the fact that
five debenture instruments — Concentrix Corporation (Concentrix), Innov-X, Ramsco, UStec, Inc. (UStec) and
Synacor — that contributed to portfolio interest income for the year ended December 31, 2006 were either repaid or
converted into equity instruments during the last six months of 2006 and throughout 2007, thereby reducing
portfolio interest income earned during the year ended December 31, 2007.
    This decrease is offset by the recognition of the Adampluseve OID income. This portfolio company,
Adampluseve, paid off its debenture instrument early and therefore the remaining $62,333 in unamortized OID
was accreted into income during the year ended December 31, 2007.
    After reviewing the portfolio companies’ performance and the circumstances surrounding the investments, the
Corporation ceased accruing interest income on the following investment instruments:
                                                                                               Interest   Investment   Year that Interest
     Company                                                                                    Rate         Cost       Accrual Ceased

     G-Tec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      8%      $400,000           2004
     UStec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5%       100,000           2006
     WineIsIt.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          10%       801,918           2005
     Interest from other investments — The increase in interest income was primarily due to higher cash balances
and higher yields on these cash balances. The higher cash balances were a result of portfolio investment repayments
and sales of portfolio companies’ equity instruments.
      Dividend and other investment income — Dividend income for the year ended December 31, 2007 consisted of
distributions from Gemcor for $1,372,407, Carolina Skiff for $40,464, Somerset for $36,788, Topps for $19,524,
and Vanguard for $681. Dividend income for the year ended December 31, 2006 consisted of distributions from
Gemcor for $375,372, Topps for $37,334, Carolina Skiff for $18,416 and Vanguard for $1,174.
     Other income — The decrease in other income from December 31, 2006 to December 31, 2007 was due to the
fact that the Corporation only charged two portfolio companies closing fees in 2006 and no closing fees were
charged in 2007. The Corporation also charged Concentrix an $18,000 prepayment penalty fee that was included in
other income during 2006. In addition board attendance income amounted to $13,000 for the year ended
December 31, 2007 and $9,000 for year ended December 31, 2006.

Operating Expenses
  Comparison of the years ended December 31, 2008 and 2007
                                                                            December 31,         December 31,
                                                                                2008                 2007        Increase    % Increase

     Total expenses . . . . . . . . . . . . . . . . . . . . . . . .         $1,721,555           $1,650,947      $70,608         4.3%
     Operating expenses predominately consist of interest expense on SBA obligations, employee compensation
and benefits, directors’ fees, shareholder related costs, office expenses, professional fees, and expenses related to
identifying and reviewing investment opportunities.
     The increase in operating expenses during the year ended December 31, 2008 can be attributed to an increase
of 17%, or $35,845, in professional fees. A portion of the increase in this expense can be attributed to the escalating
legal, audit and tax costs due to the increasingly more complex regulatory environment in which the Corporation
operates. In addition, in order to comply with the SEC rules regarding the Corporation’s operating structure the
Corporation has incurred additional legal fees associated with the corporate reorganization of the SBIC subsidiary.
      The increase is also due to the 63%, or $32,583, increase in other operating expenses. Other operating expenses
in the current year included a write off of an escrow receivable in the amount of $69,421 for UStec. Management has
deemed the collection of this escrow receivable doubtful based on the ongoing negotiations with UStec. Other
operating expenses also include a one-time $5,000 reorganization fee charged by the SBA to review the corporate
reorganization of Rand SBIC.

                                                                           19
     The SBA interest expense increased 4%, or $19,000, during the current year. Total SBA interest expense was
$522,062 and $503,062 for the years ended December 31, 2008 and 2007, respectively. The Corporation has
borrowed $8,100,000 from the SBA as of December 31, 2008 at an average borrowing rate, including surcharges, of
approximately 5.9%. This interest is paid on a semi-annual basis.

  Comparison of the years ended December 31, 2007 and 2006
                                                                     December 31,      December 31,
                                                                         2007              2006           Increase      % Increase

     Total expenses. . . . . . . . . . . . . . . . . . . . . . . .   $1,650,947         $1,519,184       $131,763          8.7%
     The increase in operating expenses during the year ended December 31, 2007 can be primarily attributed to the
83% or $96,754 increase in professional fees. Some of the increase in this expense can be attributed to the escalating
legal, audit and tax costs due to the increasingly more complex regulatory environment in which the Corporation
operates. In addition, in order to comply with the SEC rules regarding the Corporation’s operating structure the
Corporation has incurred legal fees associated with the proposed corporate reorganization of its SBIC subsidiary.

Net Realized Gains and Losses on Investments
  Comparison of the years ended December 31, 2008 and 2007
                                                                                       December 31,      December 31,
                                                                                           2008              2007         Change

     Net Realized (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       —              $(68,748)      $68,748
     There were no realized gains or losses during the year ended December 31, 2008.
     During the year ended December 31, 2007, the Corporation recognized a net realized loss of $68,748, comprised
of a gain on the sale of Ramsco warrants for $555,000, a gain of $140,048 on its investment in Allworx Corp.
(Allworx), a loss on the Topps investment of ($595,000), a loss of ($130,000) on Takeform, Inc. (Takeform), a loss on
UStec of ($39,236) and a minor gain of $440 on a public security.
     In the second quarter of 2007 Ramsco completed a refinancing of its commercial debt. As part of this
restructuring Ramsco was able to pay off the outstanding debenture instrument owed to the Corporation and
repurchase half of the Corporation’s outstanding warrants. The Corporation recognized a $555,000 gain on the
transaction.
     The Corporation made an investment in the capital stock of Allworx in the second quarter of 2007 and the
portfolio company merged with PAETEC Holding, Inc. in the fourth quarter of 2007. In conjunction with the
merger, Allworx repaid its debenture instrument and purchased the outstanding equity held by the Corporation for
$640,048, resulting in a $140,048 realized gain.
     During 2007 the Corporation recognized a realized loss of $595,000 on its investment in Topps when the plant
that produces its frozen meat products was forced to recall its frozen hamburger products. Topps announced in
October 2007 that due to the economic impact of the recall it would close the Elizabeth, NJ plant and file for
bankruptcy.
    The Corporation reclassed its $130,000 loss in Takeform from unrealized to realized in the fourth quarter of
2007 following the repayment of its obligation. The portfolio company had agreed to pay $20,000 of its $150,000
debenture instruments and it satisfied this obligation to the Corporation.
     UStec satisfied its $350,000 debenture instrument obligation by a payment of $310,764, which gave rise to a
$39,236 realized loss

  Comparison of the years ended December 31, 2007 and 2006
                                                                                  December 31,    December 31,
                                                                                      2007            2006              Change

     Net Realized (Loss) Gain . . . . . . . . . . . . . . . . . . . . . . .         $(68,748)         $3,456,441      $(3,525,189)

                                                                     20
     During the year ended December 31, 2007, the Corporation recognized a net realized loss of ($68,748),
comprised of a gain on the sale of Ramsco warrants for $555,000, a gain of $140,048 on its investment in Allworx, a
loss on the Topps investment of ($595,000), a loss of ($130,000) on Takeform, a loss on UStec of ($39,236) and a
minor gain of $440 on a public security.
     During the year ended December 31, 2006, the Corporation sold a portion of its shares in Innov-X and
recognized a realized gain of $2,280,682 on the sale.
     Furthermore, the Corporation sold its remaining 677,981 shares of Minrad during 2006 and recognized a gain
of $1,256,759. The average sales price of Minrad was $3.26/share and the basis of the stock was $1.36/share. The
Corporation incurred $33,899 in broker transaction fees that were netted against the realized gain. In addition, the
Corporation sold its interest in Vanguard during 2006 and recognized an ($81,000) loss on the disposition.

Net Change in Unrealized Appreciation of Investments
  For the years ended December 31, 2008 and 2007
                                                                      December 31,          December 31,
                                                                          2008                  2007                 Decrease         % Decrease

     Net Change in Unrealized Appreciation . . .                        $601,985             $3,521,821           $(2,919,836)           (82.9)%
    The increase in unrealized appreciation on investments of $601,985 is due to the following valuation changes
made by the Corporation:
                                                                                                                                December 31, 2008

     Gemcor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $1,700,000
     Kionix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        778,432
     Bioworks, Inc. (Bioworks) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   (28,000)
     Wineisit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (100,000)
     Niagara Dispensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               (111,000)
     Photonics Products Group, Inc (Photonics) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          (150,700)
     Carolina Skiff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (227,000)
     Golden Goal, LLC (Golden Goal). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        (237,413)
     APF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (307,334)
     Rocket Broadband . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               (715,000)
     Total Change in net Unrealized Appreciation during the year ended
       December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                $ 601,985

    The Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial
condition of the portfolio company since the Corporation made its first investment.
     Kionix was written up in accordance with FAS 157 due to overall improvement in the revenues, customer base
and the market acceptance of its products.
      The Corporation’s investment in Bioworks was valued at zero at December 31, 2008 based on an analysis of
the liquidation preferences of senior securities in the portfolio company.
     The Wineisit investment was revalued to zero during the year ended December 31, 2008 after a review by
management indicated a further deterioration of the portfolio company’s business. Wineisit remains in operation
and is developing a new business strategy.
    The Corporation converted its debt instruments in Niagara Dispensing to equity during the second quarter of
2008 and revalued its investment in based on the valuation of equity shares at conversion.
     Photonics is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the end of each
quarter.

                                                                            21
     The Corporation’s investment in Carolina Skiff was written down to cost based on a review of the company’s
financials and an overall economic downturn in the boating sector.
      Rocket Broadband continued to have inadequate cash flow to sustain its operations throughout 2008. This
resulted in the resignation of its Chief Executive Officer during the fourth quarter of 2008. While Rocket Broadband
has been able to continue operations and maintain its base of customers it is seeking additional strategic
opportunities, which may include a merger or sale of the company. Based on a review of the financial restructuring
necessary to maintain the portfolio company’s operations, the Corporation has recognized unrealized depreciation
on its investment in Rocket Broadband and valued its investment at zero. The Corporation’s valuation, if any, may
be adjusted as it obtains more information about the ultimate structure and amount of the financing that Rocket
Broadband is able to secure.
     The Corporation’s investment in Golden Goal and APF were written down during 2008 based on a review of
the companies’ financials, their weak financial performance as compared to plan, and an overall economic
downturn in their respective industries.
     Synacor filed an S-1 registration statement on August 2, 2007 with the SEC and also filed an amended S-1 in
April 2008. An S-1 is a registration document that a company files with the SEC regarding the proposed sale of its
securities to the public. In October 2008 Synacor withdrew its S-1 plans for a public offering in a notification filed
with the SEC. No valuation change has occurred with respect to the Synacor filings, but the Corporation has
previously written up its investment in Synacor based on new investor financing. The company’s actual financial
performance continues to support the valuation.
   All of these value adjustments resulted from a review by management using the guidance set forth by
SFAS 157 and the Corporation’s established valuation policy.

  For the years ended December 31, 2007 and 2006
                                                                 December 31,        December 31,
                                                                     2007                2006               Decrease        % Decrease

     Net Change in Unrealized Appreciation . . .                 $3,521,821          $9,958,053          $(6,436,232)          (64.6)%
    The increase in unrealized appreciation on investments of $3,521,821 was due to the following valuation
changes made by the Corporation:
                                                                                                                      December 31, 2007

     Increase Gemcor valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $3,500,000
     Reclass Takeform to a realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             130,000
     Increase Photonics valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        119,480
     Adampluseve warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         65,341
     Reclass USTec to realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           39,000
     Reclass Topps to realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (332,000)
     Total Change in net Unrealized Appreciation during the year ended
       December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $3,521,821

     The Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial
condition of the portfolio company since the Corporation made its first investment. Per the Corporation’s valuation
policy, a portfolio company can be valued based on a conservative financial measure if the portfolio company has
been self-financing and has had positive cash flow from operations for at least the past two fiscal years.
     The Topps investment was valued to zero during the third quarter of 2007 when the plant that produces its
frozen meat products was forced to recall its frozen hamburgers products. Topps announced on October 5, 2007 that
because of the economic impact of the recall it closed its Elizabeth, NJ plant and subsequently the company filed for
bankruptcy. The Corporation, therefore, realized a total loss on the investment in the fourth quarter of 2007 and
removed the $332,000 of unrealized appreciation on Topps that had been previously recorded.

                                                                      22
      The Corporation recognized appreciation on its remaining equity investment in Adampluseve which partic-
ipated in a round of financing in January 2007 that enabled it to pay off the Corporation’s debenture instrument prior
to the maturity date. The Corporation still holds warrants in Adampluseve, the value of which was adjusted based on
the pricing of this recent round of financing.

     USTec and Takeform satisfied their obligations to the Corporation during 2007 and therefore any unrealized
appreciation (depreciation) was reclassified to a realized gain (loss).

        Photonics is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the end of the
year.

        All of these value adjustments were done in accordance with the Corporation’s established valuation policy.


Net Increase (Decrease) in Net Assets from Operations

     The Corporation accounts for its operations using Generally Accepted Accounting Practices (GAAP) for
investment companies. The principal measure of its financial performance is “net increase (decrease) in net assets
from operations” on its consolidated statements of operations. During the year ended December 31, 2008, the net
increase was $409,143, as compared to a net increase in net assets from operations of $2,719,165 in 2007 and a net
increase of $8,166,471 in 2006.

     The net increase in net assets from operations for the year ended December 31, 2008 is due to the net unrealized
appreciation on investments of $273,454 and the net investment gain of $135,689. The net increase in net assets
from operations for the year ended December 31, 2007 can be attributed to the investment gain before income taxes
of $651,923 and the net unrealized gain on investments of $2,362,507. In addition, the Corporation recognized a
$316,253 increase in net assets attributed to the cumulative effect adjustment upon adopting the provisions of
FIN 48 “Accounting for Uncertainty in Income Taxes”. The net increase for the year ended December 31, 2006 is
due to the $9,431,273 net realized and unrealized gain on investments.


Liquidity and Capital Resources

     The Corporation’s principal objective is to achieve capital appreciation. Therefore, a significant portion of the
investment portfolio is structured to maximize the potential for capital appreciation and certain of the Corporation’s
portfolio investments may be structured to provide little or no current yield in the form of dividends or interest
payments.

     As of December 31, 2008, the Corporation’s total liquidity, consisting of cash and cash equivalents, was
$2,757,653.

     Net cash used in operating activities has averaged approximately $469,000 over the last three years and
management anticipates cash will continue to be utilized at similar levels. The cash flow may fluctuate based on
possible expenses associated with compliance with new regulations.

     The Corporation used approximately $925,000 in net cash flow from investing activities in fiscal 2008. The
Corporation realized approximately $545,000 in net cash flow from investing activities of for fiscal year 2007 and
approximately $2.5 million of cash for investing activities in fiscal year 2006. The Corporation will generally use
cash in investing activities as it builds its portfolio utilizing its available cash and proceeds from liquidations of
portfolio investments. The Corporation anticipates that it will continue to make new investments and may
experience a net use of cash over the next two years. In addition, significant liquidating events within the
Corporation’s investment portfolio are difficult to determine with any certainty.

     The Corporation had paid $100,000 to the SBA to reserve its approved $10,000,000 leverage. The Corporation
has drawn down $8,100,000 of this leverage as of December 31, 2008. The remaining leverage commitment of
$1.9 million expired on September 30, 2008.

                                                         23
     The following table summarizes the cash to be received over the next five years from portfolio companies
based on contractual obligations as of December 31, 2008. These payments represent scheduled principal and
interest payments that are contained in the investment documents of each portfolio company.
                                                                     Cash Receipts due by year
                                                                                                            2013 and
                                                   2009          2010             2011           2012        beyond

     Scheduled Cash Receipts from
       Portfolio Companies . . . . . . . . . .   $235,500     $1,646,000      $2,700,000      $918,000         $0
    The preceding table only includes debenture instruments and does not include any equity investments which
may provide additional proceeds upon exit of these securities.
     During late 2007 and throughout 2008, the global economy experienced severe turmoil. Therefore, the debt
and equity markets in the United States have been affected by this crisis. If market conditions continue to
deteriorate, the Corporation may suffer losses on its investment portfolio, which could impact cash receipts over the
next couple of years.
      The unfavorable change in credit market conditions also has created opportunities for capital providers, like
the Corporation, because small business are selling for lower prices, and they are generally willing to pay higher
interest rates and to accept more contractual terms that are more favorable to us in their investment agreements.
Accordingly, for firms that continue to have access to capital, management believes that the current environment
could provide investment opportunities on more favorable terms than have been available in prior periods. Because
the Corporation has used its available SBA leverage, in the short term, if the Corporation requires significant
additional capital to take advantage of current investment opportunities, it will need to rely primarily on its ability to
make public or private offerings of Rand’s common stock. Although the Corporation currently has no specific plans
as to the timing or amount of any common stock offering it might make, it is considering the possibility of making
such an offering during the next year in order to raise additional capital to pursue favorable investment
opportunities.
     Any common stock offering that the Corporation may make will be need to be based upon the market price of
its currently outstanding shares. As a regulated BDC, the Corporation is generally prohibited from selling its
common shares at prices that are less than the NAV of its common stock at the time of the sale. The Corporation’s
common stock sold in the NASDAQ market at a premium to net asset value during 2007, but during most of 2006
and 2008 its stock sold in a range that was below current per share NAV. In order to permit the Corporation to sell its
common stock at prices below current net asset value if a majority of the Directors of the Corporation who are not
interested persons (as defined under the Investment Company Act) make a specific determination that such a sale
would be in the best interests of the Corporation, it is seeking approval by shareholder vote at its annual meeting of a
one-year exemption from the provisions of the Investment Company Act that would otherwise prohibit it from
making sales of its common stock at less than NAV per share.
     The inability to raise capital through timely sales of common stock could also have the effect of forcing the
Corporation to sell assets that it would not otherwise sell, and such sales could occur at times that are disadvan-
tageous to sell.
      Management expects that the cash and cash equivalents at December 31, 2008, coupled with the scheduled
interest and dividend payments on its portfolio investments, will be sufficient to meet the Corporation’s cash needs
throughout 2009. The Corporation is also evaluating potential exits from portfolio companies and sale of its
common stock to increase the amount of liquidity available for new investments and operating activities. The
potential sale of stock or portfolio assets is subject to inherent market risks and volatility, which may affect the
ability of the Corporation to complete these sales and provide cash to the Corporation over the next twelve months.




                                                            24
Disclosure of Contractual Obligations
     The following table shows the Corporation’s contractual obligations at December 31, 2008. The Corporation
does not have any capital lease obligations or other long-term liabilities reflected on its balance sheet.
                                                                                  Payments due by period
                                                                              Less than      1-3         3-5      More
                                                                    Total      1 year       years      years    than 5 yrs

     SBA Debentures . . . . . . . . . . . . . . . . . . .        $8,100,000   $      0    $      0      $0     $8,100,000
     Operating Lease Obligations (Rent of
       office space) . . . . . . . . . . . . . . . . . . . .     $ 32,520     $16,080     $16,440       $0     $        0
       Total . . . . . . . . . . . . . . . . . . . . . . . . .   $8,132,520   $16,080     $16,440       $0     $8,100,000

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
     The Corporation’s investment activities contain elements of risk. The portion of the Corporation’s investment
portfolio consisting of equity and debt securities in private companies is subject to valuation risk. Because there is
typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the
equity interests in the portfolio is stated at “fair value” as determined in good faith by the Board of Directors in
accordance with the Corporation’s investment valuation policy. (The discussion of valuation policy contained in the
“Notes to Schedule of Portfolio Investments” in the consolidated financial statements contained in Item 8 of this
report is hereby incorporated herein by reference.) In the absence of a readily ascertainable market value, the
estimated value of the Corporation’s portfolio may differ significantly from the values that would be placed on the
portfolio if a ready market for the investments existed. Any changes in valuation are recorded in the Corporation’s
consolidated statement of operations as “Net unrealized appreciation on investments.”
     At times a portion of the Corporation’s portfolio may include marketable securities traded in the over-the-
counter market. In addition, there may be a portion of the Corporation’s portfolio for which no regular trading
market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing
purchaser must be available when a sale is to be made. Should an economic or other event occur that would not
allow markets to trade in an orderly fashion, the Corporation may not be able to realize the fair value of its
marketable investments or other investments in a timely manner.
     As of December 31, 2008, the Corporation did not have any off-balance sheet investments or hedging
investments.




                                                                      25
Item 8.   Financial Statements and Supplementary Data
     The following consolidated financial statements and consolidated supplemental schedule of the Corporation
and report of independent auditors thereon are set forth below:
          Statements of Financial Position as of December 31, 2008 and 2007
          Statements of Operations for the three years in the period ended December 31, 2008
          Statements of Changes in Net Assets for the three years in the period ended December 31, 2008
          Statements of Cash Flows for the three years in the period ended December 31, 2008
          Schedule of Portfolio Investments as of December 31, 2008
          Schedules of Selected Per Share Data and Ratios for the five years in the period ended December 31, 2008
          Notes to the Consolidated Financial Statements
          Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year
          ended December 31, 2008
          Report of Independent Registered Public Accounting Firm




                                                       26
                                   RAND CAPITAL CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                         December 31,

                                                                                                                        2008           2007

Assets
Investments at fair value (identified cost: 2008 — $14,386,451,
   2007 — $13,390,644) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           $28,126,282    $26,528,490
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            2,757,653      4,396,595
Interest receivable ( net of allowance 2008 — $122,817, 2007 — $122,000) . . . .                                       1,013,888        647,001
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       330,974      1,150,065
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $32,228,797    $32,722,151

Liabilities and Stockholders’ Equity (net assets)
Liabilities:
  Debentures guaranteed by the SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   $ 8,100,000    $ 8,100,000
  Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         3,490,000      3,955,000
  Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                98,723        474,465
  Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         292,731        321,210
  Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             20,377         53,653
    Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       12,001,831     12,904,328
Stockholders’ equity (net assets):
  Common stock, $.10 par; shares authorized 10,000,000; shares issued
    5,763,034 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          576,304        576,304
  Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               6,973,454      6,973,454
  Accumulated net investment (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 (3,743,908)    (3,940,409)
  Undistributed net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . .                       7,735,477      7,796,289
  Net unrealized appreciation on investments . . . . . . . . . . . . . . . . . . . . . . . . . .                       8,732,845      8,459,391
  Treasury stock, at cost, 44,100 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     (47,206)       (47,206)
   Net assets (per share 2008 — $3.54 , 2007 — $3.47) . . . . . . . . . . . . . . . . . . .                           20,226,966     19,817,823
Total liabilities and stockholders’ equity (net assets) . . . . . . . . . . . . . . . . . . .                        $32,228,797    $32,722,151




                                                             See accompanying notes

                                                                            27
                                   RAND CAPITAL CORPORATION AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              For The Years Ended December 31, 2008, 2007 and 2006

                                                                                                     2008            2007             2006

Investment income:
  Interest from portfolio companies . . . . . . . . . . . . . . . . . . . . . .                 $     608,180   $     618,430    $    757,824
  Interest from other investments . . . . . . . . . . . . . . . . . . . . . . . .                      90,660         173,664          53,104
  Dividend and other investment income . . . . . . . . . . . . . . . . . .                          1,027,377       1,469,864         432,296
  Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               30,786          40,912          83,738
                                                                                                    1,757,003       2,302,870        1,326,962
Operating expenses:
 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          440,337         460,917          482,067
 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 121,659         112,147          101,785
 Directors’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              77,250          77,750           59,500
 Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               248,667         212,822          116,068
 Stockholders and office operating . . . . . . . . . . . . . . . . . . . . . .                       120,260         122,332          108,687
 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            41,489          43,674           43,674
 Corporate development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     65,042          66,854           54,233
 Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                83,972          51,389           10,769
                                                                                                    1,198,676       1,147,885         976,783
   Interest on SBA obligations . . . . . . . . . . . . . . . . . . . . . . . . . .                    522,062         503,062         472,526
   Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   817              —           69,875
          Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            1,721,555       1,650,947        1,519,184
Investment gain (loss) before income taxes . . . . . . . . . . . . . . .                              35,448         651,923         (192,222)
  Current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .                     672,290         901,511          401,801
  Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . .                         (772,531)       (674,994)         670,779
Net investment gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   135,689         425,406      (1,264,802)
Realized and unrealized gain (loss) on investments:
  Net realized (loss) gain on sales and dispositions . . . . . . . . . .                                    —         (68,748)       3,456,441
  Unrealized appreciation (depreciation) on investments:
    Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           13,137,846        9,616,025           (342,028)
    End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         13,739,831       13,137,846          9,616,025
      Change in unrealized appreciation (depreciation) before
        income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               601,985        3,521,821        9,958,053
      Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . .                      328,531        1,159,314        3,983,221
Net increase in unrealized appreciation . . . . . . . . . . . . . . . . . .                          273,454        2,362,507        5,974,832
Net realized and unrealized gain on investments . . . . . . . . . . .                                273,454        2,293,759        9,431,273
Net increase in net assets from operations . . . . . . . . . . . . . . . .                      $    409,143    $ 2,719,165      $ 8,166,471
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . .                       5,718,934       5,718,934        5,718,934
Basic and diluted net increase in net assets from operations per
  share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $        0.07   $        0.48    $        1.43

                                                             See accompanying notes

                                                                             28
                              RAND CAPITAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
                          For The Years Ended December 31, 2008, 2007 and 2006
                                                                                        2008            2007           2006

Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . $19,817,823            $16,782,405    $ 8,615,934
Net investment gain(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        135,689       425,406     (1,264,802)
Cumulative effect adjustment for uncertain tax positions —
  FIN 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      —       316,253               —
Net realized (loss) gain on sales and dispositions of
  investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       —        (68,748)     3,456,441
Net increase in unrealized appreciation . . . . . . . . . . . . . . . . . . .              273,454     2,362,507      5,974,832
Net increase in net assets from operations . . . . . . . . . . . . . . . . .            409,143        3,035,418      8,166,471
Net assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,226,966        $19,817,823    $16,782,405




                                                     See accompanying notes.

                                                                   29
                                RAND CAPITAL CORPORATION AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For The Years Ended December 31, 2008, 2007 and 2006

                                                                                             2008             2007           2006

Cash flows from operating activities:
  Net increase in net assets from operations . . . . . . . . . . . . . . . . $ 409,143                     $ 2,719,165    $ 8,166,471
  Adjustments to reconcile net increase in net assets to net cash
    used in operating activities:
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .               52,230            33,598         26,672
    Original issue discount accretion . . . . . . . . . . . . . . . . . . . . .                   —            (62,333)            —
    Change in interest receivable allowance . . . . . . . . . . . . . . . .                      817                —              —
    Increase in unrealized appreciation of investments . . . . . . . .                      (601,985)       (3,521,821)    (9,958,053)
    Deferred tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . .            (465,000)          484,453      4,654,000
    Net realized loss (gain) on portfolio investments . . . . . . . . . .                         —             68,748     (3,456,441)
    Payment in kind, interest accrued . . . . . . . . . . . . . . . . . . . . .              (15,380)               —              —
    Non-cash conversion of debenture interest . . . . . . . . . . . . . .                    (67,235)          (50,000)       (34,356)
    Changes in operating assets and liabilities:
       (Increase) in interest receivable . . . . . . . . . . . . . . . . . . . .            (367,704)        (139,759)      (209,623)
       Decrease (increase) in other assets . . . . . . . . . . . . . . . . . .               779,083          (35,229)        42,440
       (Decrease) increase in income taxes payable . . . . . . . . . . .                    (375,742)          63,890             —
       (Decrease) increase in accounts payable and accrued
          liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (28,479)         (17,350)       560,246
       (Decrease) increase in deferred revenue . . . . . . . . . . . . . .                   (33,276)           8,048        (34,278)
            Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1,122,671)       (3,167,755)    (8,409,393)
         Net cash used in operating activities . . . . . . . . . . . . .                    (713,528)        (448,590)      (242,922)
Cash flows from investing activities:
  Investments originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (1,626,657)       (2,165,266)    (3,383,769)
  Proceeds from sale of portfolio investments . . . . . . . . . . . . . . .                       —            255,440      4,374,762
  Proceeds from loan repayments . . . . . . . . . . . . . . . . . . . . . . . .              713,465         2,456,509      1,473,322
  Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (12,222)           (1,350)       (12,255)
         Net cash (used in) provided by investing activities . . .                          (925,414)         545,333      2,452,060
Cash flows from financing activities:
  Proceeds from SBA debenture . . . . . . . . . . . . . . . . . . . . . . . . .                     —                —       900,000
  Origination costs to SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                —                —       (19,125)
            Net cash provided by financing activities . . . . . . . . . .                           —                —       880,875
Net (decrease) increase in cash and cash equivalents . . . . . . . .                      (1,638,942)          96,743      3,090,013
Cash and cash equivalents:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    4,396,595        4,299,852      1,209,839
   End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,757,653   $ 4,396,595    $ 4,299,852




                                                         See accompanying notes

                                                                       30
                             RAND CAPITAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                       December 31, 2008
Company, Geographic Location,                                              (b)                                       Per
Business Description, (Industry)                                          Date    (c)                    (d)        Share
and Website                                 Type of Investment          Acquired Equity     Cost        Value      of Rand
Non-Control/Non-Affiliate
Investments: (k)
Adampluseve, Inc.                    Warrants to purchase 1,715          7/14/06    2% $     68,000 $ 133,341      $ .02
(dba Adam) (g)                       Series A convertible preferred
New York, NY. Luxury sports          shares.
wear designer for men and
women. (Fashion Design)
www.shopadam.com
GridApp Systems, Inc. (e) (g)        $660,000 term note at 4% simple    11/25/08    3%      666,667     666,667       .12
New York, NY. Provider of            interest, 8% deferred interest
database automation software         (PIK) due January 4, 2012.
that helps businesses gain control   $6,667 convertible note at 4%
of their heterogeneous database      due November 28, 2018.
applications through a
centralized software console.
(Software) www.gridapp.com
Kionix, Inc.                         30,241 shares Series B preferred    5/17/02    2%     1,506,043   2,000,000      .35
Ithaca, NY. Develops innovative      stock. 696,296 shares Series C
micro-electronic mechanical          preferred stock.
systems (MEMS) based inertial        (g) 2,862,091 shares Series A
sensors used in consumer             preferred stock. 714,285 shares
electronics, automation and          Series B preferred stock.
healthcare sectors.
(Manufacturing)
www.kionix.com
Mezmeriz, Inc. (g)                   $100,000 convertible note at 9%      1/9/08   —        100,000     100,000       .02
Ithaca, NY. Developer of micro       due January 9, 2010.
mirror technology that replaces
silicon with carbon fibers in
MEMS enabling efficient, wide-
angle, Pico projectors to be
embedded in mobile devices.
(Electronics Developer)
www.mezmeriz.com
Photonic Products Group, Inc         66,000 shares common stock.        10/31/00    1%      165,000     112,000       .02
(OTC:PHPG.OB) (a) (i)
Northvale, NJ. Develops and
manufactures products for laser
photonics industry.
(Manufacturing) www.inrad.com
Somerset Gas Transmission            26.5337 units.                      7/10/02    2%      719,097     786,748       .14
Company, LLC (e)
Columbus, OH. Natural gas
transportation company.
(Oil and Gas)
www.somersetgas.com
Synacor Inc. (g)                     234,558 Series A preferred         11/18/02    4%     1,349,479   4,168,001      .73
Buffalo, NY. Develops                shares. 600,000 shares of Series
provisioning platforms for           B preferred shares. 240,378
aggregation and delivery of          Series C preferred shares.
content and services across          897,438 common shares.
multiple digital devices.
(Software)
www.synacor.com
Subtotal Non-Control/                                                                     $4,574,286 $7,966,757    $1.40
Non-Affiliate Investments



                                                             31
                              RAND CAPITAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                   December 31, 2008 – (Continued)

                                                                             (b)                                        Per
                                                                            Date    (c)                    (d)         Share
Company and Business                         Type of Investment           Acquired Equity     Cost        Value       of Rand
Affiliate Investments: (l)            $587,786 consolidated senior          7/8/04    6% $    607,335 $    300,000    $ .05
APF Group, Inc. (e) (g)               subordinated note at 8% due
Yonkers, NY. Manufacturer of          June 30, 2011. $13,514 senior
museum quality picture frames         subordinated note at 14% due
and framed mirrors for                June 30, 2011. Warrants to
museums, art galleries, retail        purchase 10.2941 shares of
frame shops, upscale designers        common stock.
and prominent collectors.
(Manufacturing)
www.apfgroup.com
Associates Interactive,               $247,813 promissory note at         10/15/07   22%      250,000      250,000       .04
LLC (e) (g)                           9% due December 19, 2012.
Buffalo, NY. Provider of              Investor units totaling 21.88%
training content and                  of company.
certifications used to train retail
sales associates. (Education and
Training)
www.associatesinteractive.com
Carolina Skiff LLC (e) (g)            $985,000 Class A preferred           1/30/04    5%     1,000,000    1,000,000      .18
Waycross, GA. Manufacturer of         membership interest at 7.5%.
fresh water, ocean fishing and        Redeemable January 31, 2010.
pleasure boats. (Manufacturing)       5% common membership
www.carolinaskiff.com                 interest.
                                      (j) Interest receivable $638,693.
EmergingMed.com, Inc. (g)             $500,000 senior subordinated        12/19/05    7%      500,000      500,000       .09
New York, NY. Cancer clinical         note at 10% due December 19,
trial matching and referral           2010. Warrants for 5.5% of
service. (Software)                   common stock.
www.emergingmed.com                   (j) Interest receivable $151,667.
Golden Goal LLC (g)                   191,811 Class C units at 4%.        12/10/07    6%      637,414      400,000       .07
Fort Ann, NY. Youth soccer and
lacrosse tournament park.
(Sports and Entertainment)
www.goldengoalpark.com
Innov-X Systems, Inc. (g)             2,642 Series A convertible           9/27/04    9%     1,000,000    8,761,700     1.54
Woburn, MA. Manufactures              preferred stock. Warrants for
portable x-ray fluorescence           21,596 common shares. 8%
(XRF) analyzers used in               cumulative dividend.
metals/alloy analysis.                (j) Interest receivable $162,411.
(Manufacturing)
www.innovxsys.com
Niagara Dispensing                    202,081 Series B preferred            3/8/06   14%     1,281,783    1,170,783      .20
Technologies, Inc. (e)                stock.
Amherst, NY. Beverage                 (g) 463,691 Series A preferred
dispensing technology                 stock. 518,752 Series B
development and products              preferred stock.
manufacturer, specializing in
rapid pour beer dispensing
systems for high volume
stadium and concession
operations. (Manufacturing)
www.exactpour.com




                                                                  32
                           RAND CAPITAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                   December 31, 2008 – (Continued)

                                                                        (b)                                        Per
                                                                       Date    (c)                     (d)        Share
Company and Business                      Type of Investment         Acquired Equity      Cost        Value      of Rand
RAMSCO (e) (g)                     $300,000 promissory notes at      11/19/02    6%       300,000      300,000      .05
Albany, NY. Distributor of         9% due October 20, 2010.
water, sanitary, storm sewer and   Warrants for 5.99% of common
specialty construction materials   stock.
to the contractor, highway and
municipal construction markets.
(Distributor)
www.ramsco.com
SOMS Technologies, LLC (g)         $250,000 secured convertible       12/2/08   —         250,000      250,000      .04
Valhalla, NY. Produces and         note at 10% due December 2,
markets the microGreen             2010.
Extended Performance Oil
Filter. (Auto Parts Developer)
www.microgreenfilter.com
Ultra — Scan Corporation           536,596 common shares.            12/11/92    4%       938,164    1,203,000      .21
Amherst, NY. Biometrics            107,104 Series A-1 preferred
application developer of           shares.
ultrasonic fingerprint             (g) 95,284 Series A-1 preferred
technology. (Electronics           shares.
Hardware/Software)
www.ultra-scan.com
Subtotal Affiliate Investments                                                         $ 6,764,696 $14,135,483   $2.47
Control Investments(m)
Gemcor II, LLC (e) (g) (h)         $250,000 subordinated note at      6/28/04   31%       603,200    5,803,201     1.02
West Seneca, NY. Designs and       8% due June 28, 2010 with
sells automatic riveting           warrant to purchase 6.25
machines used in the assembly      membership units. 25
of aircraft components.            membership units.
(Manufacturing)
www.gemcor.com
G-TEC Natural Gas Systems          28.925% Class A membership         8/31/99   29%       400,000      198,000      .03
Buffalo, NY. Manufactures and      interest. 8% cumulative
distributes systems that allow     dividend.
natural gas to be used as an
alternative fuel to gases.
(Manufacturing)
www.gas-tec.com
Subtotal Control Investments                                                           $ 1,003,200 $ 6,001,201   $1.05
Other Investments (e)              Various                                               2,044,269      22,841      .00
                                   Total portfolio investments (f)                     $14,386,451 $28,126,282   $4.92




                                                               33
                          RAND CAPITAL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                December 31, 2008 – (Continued)

                                  Notes to Consolidated Schedule of Portfolio Investments

(a) Unrestricted securities are freely marketable securities having readily available market quotations. All other
    securities are restricted securities, which are subject to one or more restrictions on resale and are not freely
    marketable. At December 31, 2008 restricted securities represented 99% of the value of the investment
    portfolio. Freed Maxick & Battaglia, CPA’s PC has not examined the business descriptions of the portfolio
    companies.
(b) The Date Acquired column indicates the year in which the Corporation acquired its first investment in the
    company or a predecessor company.
(c) The equity percentages estimate the Corporation’s ownership interest in the portfolio investment. The
    estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation
    or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion
    of debentures, or other available data. Freed Maxick & Battaglia, CPA’s, PC has not audited the equity
    percentages of the portfolio companies. The symbol “ 1%” indicates that the Corporation holds an equity
    interest of less than one percent.
(d) Under the valuation policy of the Corporation, unrestricted securities are valued at the closing price for
    publicly held securities for the last three days of the month. Restricted securities, including securities of
    publicly-held companies, which are subject to restrictions on resale, are valued at fair value as determined by
    the Board of Directors. Fair value is considered to be the amount which the Corporation may reasonably expect
    to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however,
    are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other
    dispositions of securities and these favorable or unfavorable differences could be material. Among the factors
    considered by the Board of Directors in determining the fair value of restricted securities are the financial
    condition and operating results, projected operations, and other analytical data relating to the investment. Also
    considered are the market prices for unrestricted securities of the same class (if applicable) and other matters
    which may have an impact on the value of the portfolio company. The Corporation has also adopted
    SFAS No. 157 “Fair Value Measurements” which defines fair value and establishes guidelines for measuring
    fair value and designates the Corporation’s investment as generally “Level 3” assets due to their privately held
    restricted nature, their size and the nature of Rand’s securities held.
(e) These investments are income producing. All other investments are non-income producing. Income producing
    investments have generated cash payments of interest or dividends within the last twelve months.
(f) Income Tax Information — As of December 31, 2008, the aggregate cost of investment securities approx-
    imated $14.4 million. Net unrealized appreciation aggregated approximately $13.7 million, of which
    $16.6 million related to appreciated investment securities and $2.9 million related to depreciated investment
    securities.
(g) Rand Capital SBIC, L.P. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal repayment.
(i)   Publicly owned company.
(j)   Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable
      on the Corporation’s Balance Sheet.
(k) Non-Control/Non-Affiliate investments are investments that are neither Control Investments or Affiliated
    Investments.
(l)   Affiliate investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as those
      Non-Control investments in companies in which between 5% and 25% of the voting securities are owned or
      Rand holds a Board seat.
(m) Control investments are defined by the 1940 Act as investments in companies in which more than 25% of the
    voting securities are owned or greater than 50% of the board representation is maintained.

                                                            34
                                  RAND CAPITAL CORPORATION AND SUBSIDIARIES
                          SCHEDULES OF SELECTED PER SHARE DATA AND RATIOS
                       For the Five Years Ended December 31, 2008, 2007, 2006, 2005 and 2004
      Selected data for each share of common stock outstanding throughout the five most current years is as follows:
                                                                                 Year Ended December 31,
                                                         2008             2007              2006           2005           2004

Income from investment
  operations (1):
  Investment income . . . . . . . . . . . . . . $           0.31      $      0.40      $       0.23    $      0.13    $      0.13
  Expenses . . . . . . . . . . . . . . . . . . . . .        0.30             0.28              0.26           0.22           0.16
   Investment gain (loss) before income
     taxes . . . . . . . . . . . . . . . . . . . . . .       0.01            0.12             (0.03)         (0.09)         (0.03)
   Income tax (benefit) expense . . . . . .                 (0.01)           0.04              0.19          (0.06)         (0.01)
   Net investment gain (loss) . . . . . . . .               0.02             0.08             (0.22)         (0.03)         (0.02)
   Cumulative effect adjustments for
     uncertain tax positions- FIN 48 . . .                  0.00             0.06              0.00           0.00           0.00
   Net realized and unrealized gain
     (loss) on investments . . . . . . . . . .              0.05             0.40              1.65          (0.04)         (0.02)
  Increase (decrease) in net asset
     value . . . . . . . . . . . . . . . . . . . . . .      0.07             0.54              1.43          (0.07)         (0.04)
Net asset value, beginning of year . . . .                  3.47             2.93              1.51           1.58           1.62
Net asset value, end of year . . . . . . . . . $            3.54      $      3.47      $       2.93    $      1.51    $      1.58
Per share market value, end of year . . . $                 3.50      $      3.60      $       3.50    $      1.34    $      1.56
Total return based on market value . . . .              (2.78)%      2.86%      161.2%      (14.1)%         7.6%
Total return based on net asset value . . .                2.1%      18.1%       94.8%        (4.6)%       (2.5)%
Supplemental data:
  Ratio of expenses before income
     taxes to average net assets. . . . . . .            8.60%       9.02%      11.96%      14.35%        9.86%
  Ratio of expenses including taxes to
     average net assets . . . . . . . . . . . . .        9.10%      10.26%      20.41%      10.34%        9.53%
  Ratio of net investment gain (loss) to
     average net assets . . . . . . . . . . . . .        0.68%       2.32%      (9.96)%     (1.99)%      (1.23)%
  Portfolio turnover . . . . . . . . . . . . . . .         6.0%        8.6%      18.1%       21.6%        50.4%
Net assets end of year . . . . . . . . . . . . . $20,226,966 $19,817,823 $16,782,405 $8,615,934 $9,027,054
Weighted average shares outstanding at
  end of year . . . . . . . . . . . . . . . . . . . 5,718,934   5,718,934   5,718,934   5,718,934    5,718,934

(1) Per share data are based on weighted average shares outstanding and results are rounded.




                                                                     35
                          RAND CAPITAL CORPORATION AND SUBSIDIARIES
                     NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. – Summary of Significant Accounting Policies
    Nature of Business – Rand Capital Corporation (“Rand”) was founded in 1969 and is headquartered in
Buffalo, New York. Rand’s investment strategy is to seek capital appreciation through venture capital investments in
small, unseasoned, developing companies, primarily in the northeastern United States.
    Rand operates as a publicly-held venture capital company, listed on the NASDAQ Small Cap Market under the
symbol “RAND”.
     Rand was incorporated under the law of New York on February 24, 1969. Beginning in 1971, Rand operated as
a publicly traded, closed-end, diversified management company that was registered under Section 8 of the
Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001, Rand elected to be treated as a business
development company (“BDC”) under the 1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the
purpose of operating it as a small business investment company (“SBIC”) licensed by the U.S. Small Business
Administration (“SBA”). The subsidiary received an SBA license to operate as an SBIC in August of 2002. The
subsidiary, which had been organized as a Delaware limited partnership, was converted into New York corporation
on December 31, 2008, at which time its operations as a licensed BDC were continued by a newly formed
corporation under the name of Rand Capital SBIC, Inc. (“Rand SBIC”). As of December 31, 2008, the Corporation
had drawn down $8,100,000 on its leverage commitments (see Note 4).
    Principles of Consolidation – The consolidated financial statements include the accounts of Rand, its
wholly-owned subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the
“Corporation”). All intercompany accounts and transactions have been eliminated in consolidation.
      Investments – Investments are valued in accordance with the Corporation’s established valuation policy and
are stated at fair value as determined in good faith by the management of the Corporation and submitted to the Board
of Directors for approval. There is no single standard for determining fair value in good faith. As a result,
determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio
investment while employing a consistently applied valuation process for investments. The Corporation analyzes
and values each individual investment on a quarterly basis, and records unrealized depreciation for an investment
that it believes has become impaired, including where collection of a loan or realization of the recorded value of an
equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that the
underlying portfolio company has appreciated in value and, therefore, its equity security has also appreciated in
value. These estimated fair values may differ from the values that would have been used had a ready market for the
investments existed and these differences could be material if our assumptions and judgments differ from results of
actual liquidation events.
     In September, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) 157, Fair Value Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting practices (“GAAP”), and expands disclosures
about fair value measurements. This statement was effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those years. On January 1, 2008, the Corporation
adopted SFAS 157.
     SFAS No. 157 classifies the inputs used to measure these fair values into the following hierarchy:
     Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s valuation
     at the measurement date.
     Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or
     similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
     Level 3: Unobservable and significant inputs to determining the fair value
     Most of the Corporation’s investments are classified in Level 3 due to their privately held restricted nature.

                                                          36
                           RAND CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Assets Measured at Fair Value on a Recurring Basis
                                                                          Fair Value Measurements at Reported Date Using
                                                                         Quoted Prices in   Significant    Other Significant
                                                                        Active Markets for  Observable       Unobservable
                                                   December 31,          Identical Assets     Inputs            Inputs
  Description                                          2008                  (Level 1)       (Level 2)         (Level 3)

  Venture Capital Investments . . . . . . $28,126,282                       $112,000                 $0            $28,014,282

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
                                                                                                     Fair Value Measurements
                                                                                                         Using Significant
                                                                                                   Unobservable Inputs (Level 3)
                                                                                                    Venture Capital Investments

  Beginning Balance, December 31, 2007, of Level 3 Assets . . . . . . . . .                                         $26,265,790
  Realized Gains or Losses included in net change in net assets from
    operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       —
  Unrealized gains or losses included in net change in net assets from
    operations
    APF Group, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (307,334)
    BioWorks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (28,000)
    Carolina Skiff LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (227,000)
    Gemcor LLC1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,000
    Golden Goal LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (237,413)
    Kionix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  778,432
    Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .                (715,000)
    Niagara Dispensing Technologies, Inc . . . . . . . . . . . . . . . . . . . . . . . .               (111,000)
    Wineisit.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (100,000)    $   752,685
  Purchases of Securities
    Associates Interactive, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000
    APF Group, Inc. capitalized Payment in Kind and interest
      conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   40,832
    GripApp Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       666,667
    Mezmeriz, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    100,000
    Niagara Dispensing Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . .               374,990
    Niagara Dispensing Technologies, Inc interest conversion . . . . . . . . .                         41,783
    Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .                35,000
    SOMS Technologies, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            250,000       $ 1,709,272
  Repayments of Securities
    New Monarch Machine Tool, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (520,147)
    Contract Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (131,065)
    Gemcor II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (62,253)      $ (713,465)
  Transfers in or out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             —
  Ending Balance, December 31, 2008, of Level 3 Assets . . . . . . . . . . .                                        $28,014,282




                                                                  37
                                RAND CAPITAL CORPORATION AND SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

                                                                                                              Fair Value Measurements
                                                                                                                  Using Significant
                                                                                                            Unobservable Inputs (Level 3)
                                                                                                             Venture Capital Investments

     The amount of total gains or (losses) for the period included in
       earnings (or changes in net assets) attributable to the change in
       unrealized gains or losses relating to assets still held at the
       reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    $    752,685
     Gains and losses (realized and unrealized) included in net increase
       in net assets from operations for the period above are reported as
       follows:
     Net Gain (Loss) on Sales and Dispositions . . . . . . . . . . . . . . . . . . . . . .                                 $            0
     Change in unrealized gains or losses relating to assets still held at
       reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  $    752,685

     In the valuation process, the Corporation uses financial information received from its portfolio companies,
which includes both audited and unaudited financial statements, annual projections and budgets prepared by the
portfolio company and other financial and non-financial business information supplied by the portfolio companies’
management. This information is used to determine financial condition, performance, and valuation of the portfolio
investments. The valuation may be reduced if a company’s performance and potential have significantly deteri-
orated. If the factors which led to the reduction in valuation are overcome, the valuation may be restored.
     Another key factor used in valuing equity investments is recent arms-length equity transactions with unrelated
new investors entered into by the portfolio company that the Corporation utilizes to form a basis for its underlying
value. Many times the terms of these equity transactions may not be identical to the equity transactions between the
portfolio company and the Corporation, and the impact of the discrepancy in transaction terms on the market value
of the portfolio company may be difficult or impossible to quantify.
     Any changes in estimated fair value are recorded in our statement of operations as “Net increase in unrealized
appreciation.”
     Investments are stated at fair value as determined in good faith by the Board of Directors, as described in the
Notes to Consolidated Schedule of Portfolio Investments. Certain investment valuations have been determined by
the Board of Directors in the absence of readily ascertainable fair values. The estimated valuations are not
necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of
securities, and these favorable or unfavorable differences could be material.
     Certain investment agreements require the portfolio companies to meet certain financial and non-financial
covenants. At December 31, 2008 certain of Rand’s portfolio investments were in violation of their loan covenants.
Management of the Corporation is pursuing compliance and has considered this in determining the carrying value
of the investment and may waive such defaults in certain circumstances.
      Realized Gain or Loss and Unrealized Appreciation or Depreciation of Investments – Amounts reported as
realized gains and losses are measured by the difference between the proceeds from the sale or exchange and the
cost basis of the investment without regard to unrealized gains or losses recorded in prior periods. The cost of
securities that have, in the Board of Directors’ judgment, become worthless, are written off and reported as realized
losses. Unrealized appreciation or depreciation reflects the difference between the valuation of the investments and
the cost basis of the investments.
     Investment Classification – In accordance with the provisions of the Investment Company Act of 1940 (1940
Act), the Corporation classifies its investments by level of control. In the 1940 Act “Control Investments” are
investments in those companies that the Corporation is deemed to “Control”. The Corporation is deemed to control
a portfolio company if it owns more than 25% of the voting securities of the company or has greater than 50%

                                                                         38
                          RAND CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

representation on the company’s board. “Affiliate Investments” are those non-control companies that the
Corporation owns between 5% and 25% of the voting securities. “Non-Control/Non-Affiliate Investments” are
those companies that are neither Control Investments nor Affiliate Investments.

    Cash and Cash Equivalents – Temporary cash investments having a maturity of three months or less when
purchased are considered to be cash equivalents.

     Revenue Recognition – Interest Income – Interest income generally is recognized on the accrual basis except
where the investment is in default or otherwise presumed to be in doubt. In such cases, interest is recognized at the
time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate.

      The Rand SBIC interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting
Requirements for Small Business Investment Companies.” Under these rules interest income cannot be recognized
if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in
doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or the loan
is in default more than 120 days. Management also utilizes other qualitative and quantitative measures to determine
the value of a portfolio investment and the collectability of any accrued interest.

     Original Issue Discount – Investments may create “original issue discount” or OID income. This situation
arises when the Corporation purchases a warrant and a note from a portfolio company simultaneously, which
requires an allocation of a portion of the purchase price to the warrant and reduces the note or debt instrument by an
equal amount in the form of a note discount or OID. The note is then reported net of the OID and the OID is
amortized into interest income over the life of the loan. The Corporation recorded one OID during 2006 in the
amount of approximately $68,000 and recognized $0, $62,333 and $5,557 in OID income for the years ended
December 31, 2008, 2007 and 2006, respectively.

     Deferred Debenture Costs – SBA debenture origination and commitment costs, which are included in other
assets, will be amortized ratably over the terms of the SBA debentures. Amortization expense during the years
ended December 31, 2008, 2007 and 2006 was $46,982, $27,982 and $26,591, respectively. Annual amortization
expense for the next five years is estimated to average $28,000 per year.

     Deferred Revenue – The Corporation charges application and closing fees in connection with its investments.
These fees are deferred and amortized into income over the life of the debt or equity investment. Deferred fees
amortized into income for the years ended December 31, 2008, 2007 and 2006 amounted to $33,275, $29,366, and
$50,277, respectively. Deferred revenue amortization income is estimated to be $6,700 in 2009 and $2,700 in 2010.

    Net Assets Per Share – Net assets per share are based on the number of shares of common stock outstanding.
There are no common stock equivalents.

     Supplemental Cash Flow Information – Income taxes paid (refunded) during the years ended December 31,
2008, 2007 and 2006 amounted to $1,069,032, $845,429 and ($11,097), respectively. Interest paid during the years
ended December 31, 2008, 2007 and 2006 was $473,575, $468,184 and $392,080, respectively. During 2008, 2007
and 2006, the Corporation converted $67,235, $50,000 and $34,356, respectively, of interest receivable into equity
investments. During the year ended December 31, 2007 the Corporation recorded two escrow receivables totaling
$209,469 and $711,249, respectively, in connection with the sale of investments.

    Concentration of Credit and Market Risk – The Corporation’s financial instruments potentially subject it to
concentrations of credit. Cash is invested with banks in amounts which, at times, exceed insurable limits.
Management does not anticipate non-performance by the banks.

     As of December 31, 2008, 78% of the Corporation’s total investment value was held in five notes and equity
securities. As of December 31, 2007, 74% of the Corporation’s total investment value was held in five notes and
equity securities.

                                                         39
                                RAND CAPITAL CORPORATION AND SUBSIDIARIES
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

     Income Taxes – The Corporation adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement 109” (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting and
disclosure for uncertain tax positions by requiring that a tax position meet a “more likely than not threshold” for the
benefit of the tax position to be recognized in the financial statements. A tax position that fails to meet the more
likely than not recognition threshold will result in either a reduction of a current or deferred tax asset or receivable,
or the recording of a current or deferred tax liability. FIN 48 also provides guidance on measurement, recognition of
tax benefits, classification, interim period accounting disclosure, and transition requirements in accounting for
uncertain tax positions.
     Accounting Estimates – The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
     Recent Accounting Standards – On January 1, 2008 the Corporation adopted Statement of Financial
Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157) which defines fair value, establishes
guidelines for measuring fair value in accordance with GAAP and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. SFAS 157 provides a framework for measuring fair value and establishes a three tiered
hierarchy for fair value measurement based upon the inputs to the valuation of an asset or liability at the
measurement date. SFAS 157 provides a consistent definition of fair value and focuses on exit prices and prioritizes
the use of market-based inputs.

Note 2. – Other Assets
     At December 31, 2008 and 2007 other assets was comprised of the following:
                                                                                                                 2008         2007

     Deferred debenture costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $172,446    $ 219,428
     Escrow receivable from Allworx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             140,048      140,048
     Escrow receivable from USTec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              69,421       69,421
     Property, plant and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             15,604        8,628
     Operating receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        2,876          278
     Reserve for uncollectible USTec escrow . . . . . . . . . . . . . . . . . . . . . . . . . .                 (69,421)          —
     Escrow receivable from Innov-X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  —       711,249
     Dividend receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           —         1,013
        Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $330,974    $1,150,065

    In 2007 the Corporation sold its equity in Allworx. A portion of the proceeds were held in escrow and are
expected to be released in 2009.
     In 2007 the Corporation sold a portion of its shares in UStec. A portion of the proceeds were held in escrow and
were scheduled to be released in 2008. There are ongoing discussions with UStec about the collection of this escrow
receivable and a reserve has been established against the receivable.
    In 2006 the Corporation sold a portion of its shares in Innov-X. As part of the sale a percentage of the proceeds
were held in an escrow account, which the Corporation recorded as a receivable. The amount was received during
2008.

                                                                        40
                                 RAND CAPITAL CORPORATION AND SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 3. – Income Taxes
     Deferred tax assets and liabilities are recorded for temporary differences between the financial statement and
tax bases of assets and liabilities using the tax rate expected to be in effect when the taxes are actually paid or
recovered.
     The tax effect of the major temporary differences and carryforwards that give rise to the Corporation’s net
deferred tax liabilities at December 31, 2008 and 2007 are approximately as follows:
                                                                                                                2008            2007

     Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 1,349,000    $ 574,000
     Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (5,007,000)    (4,678,000)
     Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              168,000        149,000
     Deferred tax liability, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $(3,490,000)   $(3,955,000)

     The Company assesses annually the recoverability of its deferred tax asset to determine if a valuation
allowance is necessary. In performing this assessment, it considers estimated future taxable income and ongoing tax
planning strategies. No allowance was deemed necessary for 2008 and 2007.
     The components of income tax expense (benefit) reported in the statements of operations are as follows for the
years ended December 31:
                                                                                                2008             2007           2006

     Current:
       Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 677,635       $ 837,752      $ 398,154
       State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (5,345)         63,759          3,647
                                                                                               672,290           901,511       401,801
     Deferred:
       Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (427,692)         472,266      3,956,000
       State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (16,308)          12,054        698,000
                                                                                               (444,000)         484,320      4,654,000
        Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 228,290       $1,385,831     $5,055,801

     A reconciliation of the expense (benefit) for income taxes at the federal statutory rate to the expense reported is
as follows:
                                                                                                2008            2007           2006

     Net investment gain and realized gain before income tax
       expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $648,757             $4,104,996     $13,222,272
     Expected tax expense at statutory rate . . . . . . . . .                . . . . . . . $241,577          $1,395,699     $ 4,495,572
     State – net of federal effect . . . . . . . . . . . . . . . . .         .......         15,016              87,430         793,336
     Pass-through benefit from Portfolio Investment . .                      .......        (42,500)                 —               —
     Tax credits and other. . . . . . . . . . . . . . . . . . . . . .        .......         14,197             (97,298)       (233,107)
        Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $228,290         $1,385,831     $ 5,055,801

      At December 31, 2008 and 2007 the Corporation no longer had any federal net operating loss carryforwards,
state net operating loss carryforwards or capital loss carryforwards. For state tax purposes the Corporation had a

                                                                            41
                             RAND CAPITAL CORPORATION AND SUBSIDIARIES
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Qualified Emerging Technology Company (QETC) tax credit carryforward of $255,381 and $225,305 at
December 31, 2008 and 2007. The QETC credit carryforward does not have an expiration date.
     The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. The cumulative effect of adopting FIN 48 was to increase current taxes payable by
$21,200 and reduce deferred tax liabilities by $316,253. As of January 1, 2007 the balance of accumulated net
investment loss was decreased by $11,016, and the balance in net unrealized appreciation on investments was
increased by $327,269. Upon adoption, the liability for income taxes associated with uncertain tax positions at
January 1, 2007 was $21,200 which, if recognized, would impact the Corporation’s effective tax rate. The
Corporation does not expect that the amounts of unrecognized tax positions will change significantly within the
next 12 months.
      For the year ended December 31, 2008, the Corporation recorded an additional $21,000 in deferred tax
liabilities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follow:
     Balance at January 1, 2007 – adoption of FIN 48 . . . . . . . . . . .           . . . . . . . . . . . . . . . . . . . $(295,053)
       Increases for positions taken in current year . . . . . . . . . . . . .       ...................                     316,253
       Increases for positions taken in prior year . . . . . . . . . . . . . .       ...................                          —
       Decreases in positions taken in prior year . . . . . . . . . . . . . . .      ...................                     (12,700)
       Decreases for settlements with taxing authorities . . . . . . . . .           ...................                          —
       Decrease for lapses in the applicable statute of limitations . .              ...................                          —
     Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $    8,500
        Increases for positions taken in current year . . . . . . . . . . . . .      ...................                        —
        Increases for positions taken in prior year . . . . . . . . . . . . . .      ...................                    21,000
        Decreases in positions taken in prior year . . . . . . . . . . . . . . .     ...................                        —
        Decreases for settlements with taxing authorities . . . . . . . . .          ...................                        —
        Decrease for lapses in the applicable statute of limitations . .             ...................                        —
                                                                                                                                —
     Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500

     It is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax
expense on the Statement of Operations. No amounts were recognized in 2007. During 2008, the Corporation
recognized $4,800 of interest and penalties related to unrecognized tax benefits.
     The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for
the years ending December 31, 2005 through 2007. The Corporation’s state income tax returns are open to audit
under the statute of limitations for the years ended December 31, 2005 through 2007. The New York State
Department of Revenue recently informed the Corporation that they are auditing the Corporation’s New York
corporate income tax returns for the years ended December 31, 2005 through 2007. All anticipated adjustments
have been recorded as a FIN 48 liability at December 31, 2008.

Note 4. – SBA Debenture Obligations
     Rand SBIC paid a non-refundable commitment fee of $100,000 to the SBA to reserve $10,000,000 of its
approved SBA Guaranteed Debenture leverage in July 2003 and August 2004. The fee represents 1% of the face
amount of the leverage reserved under the commitment and was a partial prepayment of the SBA’s nonrefundable
3% leverage draw fees. As of December 31, 2008 and 2007, Rand SBIC had debentures payable to and guaranteed
by the SBA totaling $8,100,000 against this commitment. The remaining leverage commitment of $1,900,000
expired on September 30, 2008. The remaining unamortized prepaid leverage fee of $19,000 was expensed during

                                                                  42
                          RAND CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2008. The debenture terms require semiannual payments of interest at annual interest rates ranging from 4.12% to
5.995%, plus an annual charge that ranged from .855% to .887% during the year ended December 31, 2008. The
debentures outstanding at December 31, 2008 mature from 2014 to 2016.

Note 5. – Stockholders’ Equity (Net Assets)
     At December 31, 2008 and 2007, there were 500,000 shares of $10.00 par value preferred stock authorized and
unissued.
    The Board of Directors has authorized the repurchase of up to 5% of the Corporation’s outstanding stock on the
open market through October 23, 2009.
     Summary of change in equity accounts:
                                                                   Accumulated      Undistributed
                                                                       Net           Net Realized    Net unrealized
                                                                    Investment      Gain (Loss) on    Appreciation
                                                                       Loss          Investments     on Investments

     Balance, December 31, 2006. . . . . . . . . . . . . . . . . . . $(6,253,128)   $ 9,763,366      $5,769,615
     Net increase (decrease) in net assets from operations. .        2,312,719       (1,967,077)       2,689,776
     Balance, December 31, 2007. . . . . . . . . . . . . . . . . . . $(3,940,409)   $ 7,796,289      $8,459,391
     Net increase (decrease) in net assets from operations. .          196,501           (60,812)        273,454
     Balance, December 31, 2008. . . . . . . . . . . . . . . . . . . $(3,743,908)   $ 7,735,477      $8,732,845


Note 6. – Stock Option Plans
     In July 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option
Plan (the “Plan”). The Plan provides for the award of options to purchase up to 200,000 common shares to eligible
employees. In 2002, the Corporation placed the Plan on inactive status as it developed a new profit sharing plan for
the Corporation’s employees in connection with the establishment of its SBIC subsidiary. As of December 31, 2008,
2007 and 2006, no stock options had been awarded under the Plan. Because Section 57(n) of the of the Investment
Company Act of 1940 (the “1940 Act”) prohibits maintenance of a profit sharing plan for the officers and
employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no
options will be granted under the Plan while any profit sharing plan is in effect with respect to the Corporation (See
Note 7).

Note 7. – Employee Benefit Plans
     The Corporation has a defined contribution 401(k) Plan. The Plan provides a base contribution of 1% for
eligible employees and also provides up to 5% matching contributions. Plan expense was $27,158, $29,882 and
$22,073 during the years ended December 31, 2008, 2007 and 2006, respectively.
     In 2002, the Corporation established a Profit Sharing Plan for its executive officers in accordance with
Section 57(n) of the 1940 Act. Under the Profit Sharing Plan, Rand will pay its executive officers aggregate profit
sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital
losses and unrealized depreciation of the subsidiary, for the fiscal year, computed in accordance with the Plan and
the Corporation’s interpretation of such policies. Any profit sharing paid can not exceed 20% of the Corporation’s
net income, as defined. The profit sharing payments will be split equally between Rand’s two executive officers,
who are fully vested in the Plan. There were no contributions to, or payments made under, the Plan during the years
ended 2008, 2007 and 2006.

                                                          43
                                 RAND CAPITAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 8. – Commitments and Contingencies
     The Corporation has an agreement which provides health benefits for the spouse of a former officer of the
Corporation. Remaining payments projected to be paid to the surviving spouse have been fully accrued. Total
accrued health benefits under this agreement at December 31, 2008 and 2007 were $51,122 and $59,000,
respectively.
     The Corporation has a lease for office space which expires in December 2010. Rent expense under this
operating lease for the years ended December 31, 2008, 2007 and 2006 was $16,698, $16,320 and $15,981 per year.
The future operating lease obligation for the next 2 years is approximately $17,000 per year.

Note 9. – Subsequent Events
     Subsequent to the year ended December 31, 2008, the Corporation made two follow on investments totaling
$62,637.

Note 10. – Quarterly Operations and Earnings Data – Unaudited
                                                                                       4th                  3rd              2nd            1st
                                                                                     Quarter               Quarter          Quarter       Quarter

2008
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 472,327            $ 424,043        $482,268         $378,365
Net increase (decrease) in net assets from operations . . . .                       855,573             (337,383)        (17,231)         (91,816)
Basic and diluted net increase (decrease) in net assets
  from operations per share . . . . . . . . . . . . . . . . . . . . . . .                    0.15             (0.06)          (0.00)          (0.02)
2007
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $1,081,127           $ 365,603        $375,728         $480,412
Net increase (decrease) in net assets from operations . . . .                      2,780,856            (351,099)        157,940          131,468
Basic and diluted net increase (decrease) in net assets
  from operations per share . . . . . . . . . . . . . . . . . . . . . . .                    0.49             (0.06)           0.03           0.02

Note 11. – Allowance for Doubtful Accounts
     The Corporation maintains an allowance for doubtful accounts for estimated losses from interest payments due
from portfolio investments. The allowance for doubtful accounts is based on a review of the overall condition of the
accounts receivable balances and a review of past due amounts. Changes in the allowance for doubtful accounts
consist of the following:
                                                                                                    2008             2007              2006

      Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . .           $(122,000)        $(122,000)        $(236,870)
      Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (817)                –                 –
      Recoveries/Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            –                 –           114,870
      Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $(122,817)        $(122,000)        $(122,000)




                                                                         44
                                 RAND CAPITAL CORPORATION AND SUBSIDIARIES
                       SCHEDULE OF CONSOLIDATED CHANGES IN INVESTMENTS AT
                                      COST AND REALIZED GAIN
                                  For the Year Ended December 31, 2008
                                                                                                                          Cost
                                                                                                                        Increase     Realized
                                                                                                                       (Decrease)     Gain

New and additions to previous investments
  GridApp Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      . . . . . . . . $ 666,667
  Niagara Dispensing Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .              ........          416,773
  SOMS Technologies, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           ........          250,000
  Associates Interactive, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        ........          200,000
  Mezmeriz, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ........          100,000
  APF Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    ........           40,832
  Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              ........           35,000
                                                                                                                       1,709,272
Investments sold/liquidated
  New Monarch Machine Tool, Inc. repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    (520,147)
  Gemcor LLC repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (62,253)
  Contract Staffing repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (131,065)
                                                                                                                        (713,465)
Net change in investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 995,807              —




                                                                        45
              REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Rand Capital Corporation and Subsidiaries

     We have audited the accompanying consolidated statements of financial position of Rand Capital Corporation
and Subsidiaries (the “Corporation”) as of December 31, 2008 and 2007, including the consolidated schedule of
portfolio investments as of December 31, 2008, and the related consolidated statements of operations, cash flows
and changes in net assets for each of the three years in the period ended December 31, 2008, and the selected per
share data and ratios for each of the five years in the period then ended. These consolidated financial statements and
the selected per share data and ratios are the responsibility of the Corporation’s management. Our responsibility is
to express an opinion on these consolidated financial statements and selected per share data and ratios based on our
audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and selected per share data and ratios are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included examination or confirmation of securities owned as of December 31, 2008 and
2007. An audit also includes assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements and selected per share data and ratios referred to above
present fairly, in all material respects, the financial position of the Corporation as of December 31, 2008 and 2007,
the results of their operations, their cash flows and the changes in their net assets for each of the three years in the
period ended December 31, 2008, and the selected per share data and ratios for each of the five years in the period
then ended, in conformity with U.S. generally accepted accounting principles.

     As discussed in Note 1, the investment securities included in the consolidated financial statements valued at
$28,126,282 (139% of net assets) and $26,528,490 (134% of net assets) as of December 31, 2008 and 2007,
respectively, include securities valued at $28,014,282 and $26,265,790, respectively, whose fair values have been
estimated by the Board of Directors in the absence of readily ascertainable market value. We have reviewed the
procedures used by the Directors in preparing the valuations of investment securities and have inspected the
underlying documentation, and in the circumstances we believe the procedures are reasonable and the documen-
tation appropriate. Those estimated values may differ from the values that would have been used had a ready market
for the investments existed.

     Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The supplementary schedule of consolidated changes in investments at cost and realized loss for
the year ended December 31, 2008 is presented for purposes of additional analysis and is not a required part of the
basic consolidated financial statements. The supplemental schedule is the responsibility of Corporation’s man-
agement. Such schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.

/s/   Freed Maxick & Battaglia, CPAs, PC

Buffalo, New York
March 25, 2009

                                                           46
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     None

Item 9A(T). Controls and Procedures
     There have been no significant changes in our internal control or in other factors that could significantly affect
those controls subsequent to our evaluation, including any corrective actions with regard to significant deficiencies
and material weaknesses.
     Management report on Internal Control Over Financial Reporting The management of the Corporation is
responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s
internal control system is a process designed to provide reasonable assurance to the Corporation’s management and
board of directors regarding the preparation and fair presentation of published financial statements.
     Our internal control over financial reporting includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made
only in accordance with authorizations of management and the directors of the Corporation; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Corporation’s assets that could have a material effect on our financial statements.
      All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
     Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our
assessment management believes that, as of December 31, 2008, the Corporation’s internal control over financial
reporting is effective based on those criteria.
     This annual report does not include an attestation report of the Corporation’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Com-
mission that permit the company to provide only management’s report in this annual report.
     Changes in Internal Control over Financial Reporting. There have been no significant changes in our
internal control or in other factors that could significantly affect those controls subsequent to our evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 9B.    Other Information
     None


                                                       Part III

Item 10.    Directors, Executive Officers, and Corporate Governance
    Information in response to this Item is incorporated herein by reference to the information under the headings
‘‘PROPOSAL 1 – ELECTION OF DIRECTORS”, “COMMITTEES AND MEETING DATA,” and “Section 16(a)
Beneficial Ownership Compliance” provided in the Corporation’s definitive Proxy Statement for its Annual
Meeting of Shareholders to be held April 30, 2009, to be filed under Regulation 14A (the “2009 Proxy Statement”).

                                                          47
    The Corporation has adopted a written code of ethics and officer Code of Ethics that applies to our principal
executive officer, principal financial officer, and controller, and a Business Ethics Policy applicable to the
Corporation’s directors, officers and employees. The Corporation’s Code of Ethics and Business Ethics Policy
are available, free of charge, in the Governance section of the Corporation’s website located at
www.randcapital.com.

Item 11.   Executive Compensation
     Information in response to this Item is incorporated herein by reference to the information provided in the
Corporation’s 2009 Proxy Statement under the headings “COMPENSATION DISCUSSION AND ANALYSIS”
and “DIRECTOR COMPENSATION.”

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
           Matters
    Information in response to this Item is incorporated herein by reference to the information provided in the
Corporation’s 2009 Proxy Statement under the heading “BENEFICIAL OWNERSHIP OF SHARES.”

Item 13.   Certain Relationships and Related Transactions and Director Independence
    Information in response to this Item is incorporated herein by reference to the information in the Corporation’s
2009 Proxy Statement under the heading “DIRECTOR INDEPENDENCE.”

Item 14.   Principal Accountant Fees and Services
     Information concerning the Corporation’s independent auditors, the audit committee’s pre-approval policy for
audit services and our principal accountant fees and services is contained in the Corporation’s 2009 Proxy
Statement under the heading “INDEPENDENT ACCOUNTANT FEES”.


                                                     Part IV

Item 15.   Exhibits, Financial Statement Schedules
     (a) The following documents are filed as part of this report and included in Item 8:
           (1) CONSOLIDATED FINANCIAL STATEMENTS
               Statements of Financial Position as of December 31, 2008 and 2007
               Statements of Operations for the three years in the period ended December 31, 2008
               Statements of Changes in Net Assets for the three years in the period ended December 31, 2008
               Statements of Cash Flows for the three years in the period ended December 31, 2008
               Schedule of Portfolio Investments as of December 31, 2008
               Schedules of Selected Per Share Data and Ratios for the five years in the period ended December 31,
               2008
               Notes to the Consolidated Financial Statements
               Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the
               year ended December 31, 2008
               Report of Independent Registered Public Accounting Firm
           (2) FINANCIAL STATEMENT SCHEDULES
               The required financial statement Schedule II – Valuation and Qualifying Accounts has been omitted
               because the information required is included in the note 10 to the consolidated financial statements.

                                                        48
    (b) The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in
        accordance with Rule 12b-32 under the Securities Exchange Act of 1934.

         (3)(i)    Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of
                   Form N-2 filed with the Securities Exchange Commission on April 22, 1997.

         (3)(ii)   By-laws of the Corporation incorporated by reference to Exhibit (b) of Form N-2 filed with the
                   Securities Exchange Commission on April 22, 1997.

         (4) Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) of
             Form N-2 filed with the Securities Exchange Commission on April 22, 1997.

         (10.1)    Employee Stock Option Plan – incorporated by reference Appendix B to the Corporation’s
                   definitive Proxy Statement filed on June 1, 2002.*

         (10.3)    Agreement of Limited Partnership for Rand Capital SBIC, L.P. – incorporated by reference to
                   Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31, 2001.

         (10.4)    Certificate of Formation of Rand Capital SBIC, L.P. – incorporated by reference to Exhibit 10.3
                   to the Corporation’s Form 10-K filed for the year ended December 31, 2001.

         (10.5)    Limited Liability Corporation Agreement of Rand Capital Management, LLC – incorporated by
                   reference to Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31,
                   2001.

         (10.6)    Certificate of Formation of Rand Capital Management, LLC – incorporated by reference to
                   Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31, 2001.

         (10.7)    Certificate of Incorporation of Rand Merger Corporation as filed by the NY Department of State
                   on 12/18/08 – incorporated by reference to Exhibit 1(a) to Registration Statement
                   No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.

         (10.8)    By-laws of Rand Capital SBIC, Inc. – incorporated by reference to Exhibit 2 to Registration
                   Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.

         (10.9)    Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital Management, LLC into Rand
                   Merger Corporation, as filed by the NY Department of State on 12/18/08 – incorporated by
                   reference to Exhibit 1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
                   SBIC, Inc. filed with the SEC on 2/6/09.

         (10.10)    Rand Capital Corporation Amended and Restated Profit Sharing Plan applicable to Rand
                    Capital SBIC, Inc. – incorporated by reference to Exhibit 7 to Registration Statement
                    No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.*

         (31.1)    Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the
                   Securities Exchange Act of 1934, as amended-filed herewith

         (31.2)    Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the
                   Securities Exchange Act of 1934, as amended – filed herewith

         (32.1)    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital
                   Corporation – furnished herewith

         (32.2)    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital SBIC,
                   Inc. – furnished herewith

* Management contract or compensatory plan.

                                                         49
                                             SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has
duly caused this Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized.

Date: March 25, 2009                                RAND CAPITAL CORPORATION


                                                    By: /s/   ALLEN F. GRUM
                                                        Allen F. Grum, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been
signed below by the following persons on behalf of the Corporation in the capacities and on the date
indicated.
                   Signature                                    Title


(i) Principal Executive Officer:

/s/ ALLEN F. GRUM                                             President                   March 25, 2009
Allen F. Grum

(ii) Principal Accounting & Financial Officer:

/s/ DANIEL P. PENBERTHY                                       Treasurer                   March 25, 2009
Daniel P. Penberthy

(iii) Directors:

/s/ ALLEN F. GRUM                                             Director                    March 25, 2009
Allen F. Grum

/s/ ERLAND E. KAILBOURNE                                      Director                    March 25, 2009
Erland E. Kailbourne

/s/ ROSS B. KENZIE                                            Director                    March 25, 2009
Ross B. Kenzie

/s/ WILLIS S. MCLEESE                                         Director                    March 25, 2009
Willis S. McLeese

/s/ REGINALD B. NEWMAN II                                     Director                    March 25, 2009
Reginald B. Newman II

/s/ JAYNE K. RAND                                             Director                    March 25, 2009
Jayne K. Rand

/s/ ROBERT M. ZAK                                             Director                    March 25, 2009
Robert M. Zak




                                                   50
                                                                                                        EXHIBIT 31.1

                                                  CERTIFICATION
                                                            of
                   Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
                                the Securities Exchange Act of 1934, as amended
     I, Allen F. Grum, certify that:
     1. I have reviewed this annual report on Form 10-K of Rand Capital Corporation and subsidiaries;
     2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
     3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
           a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
     to be designed under our supervision, to ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
     which this annual report is being prepared;
           b) Designed such internal control over financial reporting, or caused such internal control over financial
     reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for external purposes in accordance with
     generally accepted accounting principles.
           c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
     annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and
           d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
     occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
     materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
           a) All significant deficiencies and material weaknesses in the design or operation of internal controls
     over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
     process, summarize and report financial information; and
           b) Any fraud, whether or not material, that involves management or other employees who have a
     significant role in the registrant’s internal control over financial reporting.

Dated: March 25, 2009




                                                            Allen F. Grum, President
                                                            (Principal Executive Officer of Rand Capital
                                                            Corporation and Principal Executive Officer of Rand
                                                            Capital SBIC, Inc.)

                                                           51
                                                                                                        EXHIBIT 31.2

                                                  CERTIFICATION
                                                            of
                   Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
                                the Securities Exchange Act of 1934, as amended
     I, Daniel P. Penberthy, certify that:
     1. I have reviewed this annual report on Form 10-K of Rand Capital Corporation and subsidiaries;
     2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
     3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
           a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
     to be designed under our supervision, to ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
     which this annual report is being prepared;
           b) Designed such internal control over financial reporting, or caused such internal control over financial
     reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for external purposes in accordance with
     generally accepted accounting principles.
           c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
     annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and
           d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
     occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
     materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
           a) All significant deficiencies and material weaknesses in the design or operation of internal controls
     over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
     process, summarize and report financial information; and
           b) Any fraud, whether or not material, that involves management or other employees who have a
     significant role in the registrant’s internal control over financial reporting.

Dated: March 25, 2009




                                                            Daniel P. Penberthy, Treasurer
                                                            (Principal Financial Officer of Rand Capital
                                                            Corporation and Principal Financial Officer of Rand
                                                            Capital SBIC, Inc.)

                                                           52
                                                                                                 EXHIBIT 32.1

                                           CERTIFICATION
                  Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906
                                   Of the Sarbanes-Oxley Act of 2002
     Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
each of the undersigned officers of Rand Capital Corporation (the “Company”), does hereby certify, to such
officer’s knowledge, that:
     The Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the Form 10-K) of the
Company fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of the Company.

Dated: March 25, 2009




                                                        Allen F. Grum, President
                                                        (Chief Executive Officer)

Dated: March 25, 2009




                                                        Daniel P. Penberthy, Treasurer
                                                        (Chief Financial Officer)




                                                       53
                                                                                                  EXHIBIT 32.2

                                           CERTIFICATION
                  Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906
                                   Of the Sarbanes-Oxley Act of 2002
     Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
each of the undersigned officers of Rand Capital SBIC, Inc. (the “Company”), does hereby certify, to such officer’s
knowledge, that:
     The Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the Form 10-K) of the
Company fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of the Company

Dated: March 25, 2009




                                                                       Allen F. Grum, President of
                                                                        Rand Capital Corporation
                                                                          (chief executive officer
                                                                       of Rand Capital SBIC, Inc.)

Dated: March 25, 2009




                                                                     Daniel P. Penberthy, Treasurer of
                                                                        Rand Capital Corporation
                                                                          (chief financial officer
                                                                       of Rand Capital SBIC, Inc.)




                                                        54
TRANSFER AGENT

     For information on ownership, lost/missing shares or other information regarding Rand stock certificates,
please contact our transfer agent. If you need additional assistance, please contact Rand Capital directly.
      Continental Stock Transfer & Trust Company
      17 Battery Place, 8th Floor
      New York, NY 10004
      Phone: 212-509-4000
      www.continentalstock.com



SHAREHOLDERS

      The Corporation had an estimated total of 820 shareholders, which included approximately 97 record holders
of its common stock, and an estimated 723 shareholders with shares held under beneficial ownership in nominee
name or within clearinghouse positions of brokerage firms or banks.



STOCK LISTING INFORMATION

    The common stock of Rand Capital is traded on The NASDAQ Capital Market tier of the NASDAQ Stock
Market under the symbol: RAND. The closing stock price at December 31, 2008 was $3.50.



NOTICE OF ANNUAL MEETING

    The Annual Meeting of Shareholders of Rand Capital Corporation will be held on Thursday, April 30, 2009 at
10:30 a.m. at the Rand Building, Room 410, 14 Lafayette Square, Buffalo, New York. All shareholders are
encouraged to attend.



DIRECTORS

Reginald B. Newman II . . . . . . . . . . . . . . . . . . . . . .              Chairman, Prior Aviation Services, Inc.
  Buffalo, NY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        Chairman of the Board, Rand Capital Corporation
Allen F. Grum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        President, Rand Capital Corporation
  Buffalo, NY
Erland E. Kailbourne . . . . . . . . . . . . . . . . . . . . . . . .           Chairman, Financial Institutions, Inc.
  Buffalo, NY
Ross B. Kenzie. . . . . . . . . . . . . . . . . . . . . . . . . . . . .        Retired
  Buffalo, NY
Willis S. McLeese . . . . . . . . . . . . . . . . . . . . . . . . . .          Chairman, Colmac Holdings Ltd.
 Toronto, Canada
Jayne K. Rand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        Vice President, M&T Bank
  Buffalo, NY
Robert M. Zak . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        President & CEO, Merchants Insurance Group
  Buffalo, NY

                                                                          55
OFFICERS

Allen F. Grum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        President
Daniel P. Penberthy . . . . . . . . . . . . . . . . . . . . . . . . .          Treasurer/Secretary

CORPORATE COUNSEL                                                              INDEPENDENT AUDITORS
Hodgson Russ LLP                                                               Freed Maxick & Battaglia, CPA’s, PC
The Guaranty Building                                                          800 Liberty Building
140 Pearl Street, Suite 100                                                    Buffalo, NY 14202
Buffalo, NY 14202                                                              www.freedmaxick.com
www.hodgsonruss.com


RAND CAPITAL CORPORATION

2200 Rand Building                                                             Email: pgrum@randcapital.com
Buffalo, NY 14203                                                                     dpenberthy@randcapital.com
Tel: 716-853-0802
Fax: 716-854-8480                                                              Shareholder
www.randcapital.com                                                            Information shareholders@randcapital.com




                                                                          56

				
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